Comparative Advantage and the Quality Choice of Heterogeneous Firms

Dongzhe Zhang (), Antonio Navas () and Ian Gregory-Smith ()
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Dongzhe Zhang: Department of Economics, University of Sussex Business School, UK
Antonio Navas: Department of Economics, University of Sheffield, Sheffield S1 4DT, UK

No 2023022, Working Papers from The University of Sheffield, Department of Economics

Abstract: This paper examines how trade openness affects firms’ product quality across industries based on a country’s comparative advantage. We develop a Heckscher-Ohlin model with heterogeneous firms and endogenous quality upgrading. Trade openness affects a firm’s product quality differ- ently within an industry based on the firm’s export status. In particular, trade openness increases exporters’ product quality and reduces the quality from non-exporting firms. These effects are not homogeneous across industries; they are more pronounced in a country’s comparative advan- tage industry. We test the main predictions of the model using transaction-level data of Chinese exports. Consistent with our theoretical predictions, we find that Chinese exporters export higher quality products in those industries in which China reveals a comparative advantage.

Keywords: Heterogeneous Firms; Product Quality; Comparative Advantage (search for similar items in EconPapers)
JEL-codes: F11 F14 (search for similar items in EconPapers)
Pages: 53 pages
Date: 2023-12
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:shf:wpaper:2023022

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