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Quality sorting and trade: Firm-level evidence for French wine

Thierry Mayer, Keith Head and Matthieu Crozet

No 7295, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Investigations of the effect of quality differences on heterogeneous performance in exporting have been limited by lack of direct measures of quality. We examine exports of French wine, matching the exporting firms to producer ratings from two wine guides. We show that high quality producers export to more markets, charge higher prices, and sell more in each market. More attractive markets are served by exporters that, on average, make lower rated Champagne. Market attractiveness has a weakly negative effect on prices and a strongly positive effect on quantities, confirming the sign predictions of a simple quality sorting model. Methodologically, we make several contributions to the literature. First, we propose an estimation method for regressions of firm-level exports on ability measures and use Monte Carlo simulations to show that it corrects a severe selection bias present in OLS estimates. Second, we show how the means of quality, price, and quantity for exporters to a given market can be used to recover estimates of core parameters (which we compare with firm-level estimates) and discriminate between productivity and quality-sorting versions of the Melitz model. Our new method regresses country means on an index of each country's attractiveness and the fixed costs of entering it. We compare our method, which utilizes explanatory variables estimated in the firm-level regressions, to the conventional approach that relies on a reduced-form relationship with proxies for attractiveness and fixed costs.

Keywords: Gravity; Heterogeneity; Quality; Trade (search for similar items in EconPapers)
JEL-codes: F12 (search for similar items in EconPapers)
Date: 2009-05
New Economics Papers: this item is included in nep-agr and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (35)

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Related works:
Journal Article: Quality Sorting and Trade: Firm-level Evidence for French Wine (2012) Downloads
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2012)
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2012)
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2012)
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2012)
Working Paper: QUALITY SORTING AND TRADE: FIRM-LEVEL EVIDENCE FOR FRENCH WINE (2009) Downloads
Working Paper: Quality Sorting and Trade: Firm-Level Evidence for French Wine (2009) Downloads
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2009) Downloads
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2009) Downloads
Working Paper: Quality sorting and trade: Firm-level evidence for French wine (2009) Downloads
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