Heterogeneous Quality Firms and Trade Costs

There is increasing empirical evidence that vertical product differentiation is an important determinant of international trade. However, the economic literature so far has solely focused on the case in which quality trade stems from differences be...

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Main Authors:	Helble, Matthias, Okubo, Toshihiro
Format:	Policy Research Working Paper
Language:	English
Published:	World Bank, Washington, DC 2012
Subjects:	ADVERTISING AGGREGATE DEMAND AIM AIRCRAFT AVERAGE PRICE AVERAGE PRICES BILATERAL TRADE BRANDS CAPITAL STOCK CFS CLOSED ECONOMY COMMERCIAL POLICY COMMODITY COMMON MARKET COMPARATIVE ADVANTAGE COMPETITION EFFECT COMPETITIVENESS CONSTANT ELASTICITY OF SUBSTITUTION CONSTANT RETURNS TO SCALE CONSUMER PRICES CONSUMERS CURRENCY DEMAND FUNCTION DEVELOPMENT ECONOMICS DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC GEOGRAPHY ECONOMIC SIZE ECONOMIC THEORY ELASTICITY ELASTICITY OF SUBSTITUTION EXOGENOUS VARIABLES EXPENDITURE EXPORT MARKET EXPORT MARKETS EXPORT PERFORMANCE EXPORT PRICE EXPORT PRICES EXPORT TRADE EXPORTERS EXPORTS FACTOR ENDOWMENTS FACTOR PRICE FACTOR PRICES FIXED COSTS FOREIGN DIRECT INVESTMENT FOREIGN MARKET FOREIGN PRODUCERS FOREIGN SALES FREE TRADE FREIGHT FREIGHT COSTS FREIGHT RATES FUTURE RESEARCH FUTURE STUDIES GDP GRAVITY EQUATION GRAVITY MODEL HARMONIZED SYSTEM HOME MARKET HUMAN CAPITAL IMPACT OF TRADE IMPORT PENETRATION INCOME EFFECT INCOME LEVELS INCREASING RETURNS INDUSTRIAL ECONOMICS INDUSTRY TRADE INTERNATIONAL MARKETS INTERNATIONAL TRADE LABOR MARKET MANUFACTURING MARGINAL COSTS MARKET ACCESS MARKET COMPETITION MARKET SHARE MARKET SIZE MARKET SIZE EFFECTS MEASURE OF TRADE MONOPOLISTIC COMPETITION NATIONAL INCOME NET EXPORTER NOMINAL PRICE PATTERN OF TRADE PATTERNS OF TRADE PER CAPITA INCOME PERFECT COMPETITION POLITICAL ECONOMY PRICE COMPETITION PRICE DISCRIMINATION PRICE MECHANISM PRODUCT DIFFERENTIATION PRODUCT QUALITY PRODUCTIVITY PROFIT FUNCTIONS SALES SHIPMENTS SHIPPING SHIPPING COSTS SOUTH AMERICAN SPECIALIZATION SUPPLIERS TARIFF DATA TECHNOLOGY TRANSFER TELECOMMUNICATIONS TERMS OF TRADE TOTAL COSTS TRADE COSTS TRADE DATA TRADE FACILITATION TRADE FLOWS TRADE LIBERALIZATION TRADE MODELS TRADE MORE TRADE PARTNERS TRADE PATTERN TRADE PATTERNS TRANSPORT COSTS TURNOVER UNEMPLOYMENT UNIT OF CAPITAL UNSKILLED LABOR UTILITY FUNCTION VALUE OF EXPORTS VALUE OF TRADE VARIABLE COSTS WAGES
Online Access:	http://documents.worldbank.org/curated/en/2008/03/9069456/heterogeneous-quality-firms-trade-costs http://hdl.handle.net/10986/6558

id	okr-10986-6558
recordtype	oai_dc
spelling	okr-10986-65582021-04-23T14:02:31Z Heterogeneous Quality Firms and Trade Costs Helble, Matthias Okubo, Toshihiro ADVERTISING AGGREGATE DEMAND AIM AIRCRAFT AVERAGE PRICE AVERAGE PRICES BILATERAL TRADE BRANDS CAPITAL STOCK CFS CLOSED ECONOMY COMMERCIAL POLICY COMMODITY COMMON MARKET COMPARATIVE ADVANTAGE COMPETITION EFFECT COMPETITIVENESS CONSTANT ELASTICITY OF SUBSTITUTION CONSTANT RETURNS TO SCALE CONSUMER PRICES CONSUMERS CURRENCY DEMAND FUNCTION DEVELOPMENT ECONOMICS DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC GEOGRAPHY ECONOMIC SIZE ECONOMIC THEORY ELASTICITY ELASTICITY OF SUBSTITUTION EXOGENOUS VARIABLES EXPENDITURE EXPORT MARKET EXPORT MARKETS EXPORT PERFORMANCE EXPORT PRICE EXPORT PRICES EXPORT TRADE EXPORTERS EXPORTS FACTOR ENDOWMENTS FACTOR PRICE FACTOR PRICES FIXED COSTS FOREIGN DIRECT INVESTMENT FOREIGN MARKET FOREIGN PRODUCERS FOREIGN SALES FREE TRADE FREIGHT FREIGHT COSTS FREIGHT RATES FUTURE RESEARCH FUTURE STUDIES GDP GRAVITY EQUATION GRAVITY MODEL HARMONIZED SYSTEM HOME MARKET HUMAN CAPITAL IMPACT OF TRADE IMPORT PENETRATION INCOME EFFECT INCOME LEVELS INCREASING RETURNS INDUSTRIAL ECONOMICS INDUSTRY TRADE INTERNATIONAL MARKETS INTERNATIONAL TRADE LABOR MARKET MANUFACTURING MARGINAL COSTS MARKET ACCESS MARKET COMPETITION MARKET SHARE MARKET SIZE MARKET SIZE EFFECTS MEASURE OF TRADE MONOPOLISTIC COMPETITION NATIONAL INCOME NET EXPORTER NOMINAL PRICE PATTERN OF TRADE PATTERNS OF TRADE PER CAPITA INCOME PERFECT COMPETITION POLITICAL ECONOMY PRICE COMPETITION PRICE DISCRIMINATION PRICE MECHANISM PRODUCT DIFFERENTIATION PRODUCT QUALITY PRODUCTIVITY PROFIT FUNCTIONS SALES SHIPMENTS SHIPPING SHIPPING COSTS SOUTH AMERICAN SPECIALIZATION SUPPLIERS TARIFF DATA TECHNOLOGY TRANSFER TELECOMMUNICATIONS TERMS OF TRADE TOTAL COSTS TRADE COSTS TRADE DATA TRADE FACILITATION TRADE FLOWS TRADE LIBERALIZATION TRADE MODELS TRADE MORE TRADE PARTNERS TRADE PATTERN TRADE PATTERNS TRANSPORT COSTS TURNOVER UNEMPLOYMENT UNIT OF CAPITAL UNSKILLED LABOR UTILITY FUNCTION VALUE OF EXPORTS VALUE OF TRADE VARIABLE COSTS WAGES There is increasing empirical evidence that vertical product differentiation is an important determinant of international trade. However, the economic literature so far has solely focused on the case in which quality trade stems from differences between countries. No studies investigate the role of quality trade between similar economies. This paper first develops a simple theoretical trade model that includes vertical product differentiation in a heterogeneous-firm framework. The model yields three main predictions for trade between similar economies. First, exported goods are of higher quality than goods sold on the domestic market. Second, larger economies have on average higher export qualities compared with smaller economies. Third, with increasing trade costs higher quality goods are exchanged. For all three effects, strong empirical support is found using detailed export trade data of the United States and 15 European Union countries. 2012-05-29T17:04:25Z 2012-05-29T17:04:25Z 2008-03 http://documents.worldbank.org/curated/en/2008/03/9069456/heterogeneous-quality-firms-trade-costs http://hdl.handle.net/10986/6558 English Policy Research Working Paper; No. 4550 CC BY 3.0 IGO http://creativecommons.org/licenses/by/3.0/igo/ World Bank World Bank, Washington, DC Publications & Research :: Policy Research Working Paper Publications & Research
repository_type	Digital Repository
institution_category	Foreign Institution
institution	Digital Repositories
building	World Bank Open Knowledge Repository
collection	World Bank
language	English
topic	ADVERTISING AGGREGATE DEMAND AIM AIRCRAFT AVERAGE PRICE AVERAGE PRICES BILATERAL TRADE BRANDS CAPITAL STOCK CFS CLOSED ECONOMY COMMERCIAL POLICY COMMODITY COMMON MARKET COMPARATIVE ADVANTAGE COMPETITION EFFECT COMPETITIVENESS CONSTANT ELASTICITY OF SUBSTITUTION CONSTANT RETURNS TO SCALE CONSUMER PRICES CONSUMERS CURRENCY DEMAND FUNCTION DEVELOPMENT ECONOMICS DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC GEOGRAPHY ECONOMIC SIZE ECONOMIC THEORY ELASTICITY ELASTICITY OF SUBSTITUTION EXOGENOUS VARIABLES EXPENDITURE EXPORT MARKET EXPORT MARKETS EXPORT PERFORMANCE EXPORT PRICE EXPORT PRICES EXPORT TRADE EXPORTERS EXPORTS FACTOR ENDOWMENTS FACTOR PRICE FACTOR PRICES FIXED COSTS FOREIGN DIRECT INVESTMENT FOREIGN MARKET FOREIGN PRODUCERS FOREIGN SALES FREE TRADE FREIGHT FREIGHT COSTS FREIGHT RATES FUTURE RESEARCH FUTURE STUDIES GDP GRAVITY EQUATION GRAVITY MODEL HARMONIZED SYSTEM HOME MARKET HUMAN CAPITAL IMPACT OF TRADE IMPORT PENETRATION INCOME EFFECT INCOME LEVELS INCREASING RETURNS INDUSTRIAL ECONOMICS INDUSTRY TRADE INTERNATIONAL MARKETS INTERNATIONAL TRADE LABOR MARKET MANUFACTURING MARGINAL COSTS MARKET ACCESS MARKET COMPETITION MARKET SHARE MARKET SIZE MARKET SIZE EFFECTS MEASURE OF TRADE MONOPOLISTIC COMPETITION NATIONAL INCOME NET EXPORTER NOMINAL PRICE PATTERN OF TRADE PATTERNS OF TRADE PER CAPITA INCOME PERFECT COMPETITION POLITICAL ECONOMY PRICE COMPETITION PRICE DISCRIMINATION PRICE MECHANISM PRODUCT DIFFERENTIATION PRODUCT QUALITY PRODUCTIVITY PROFIT FUNCTIONS SALES SHIPMENTS SHIPPING SHIPPING COSTS SOUTH AMERICAN SPECIALIZATION SUPPLIERS TARIFF DATA TECHNOLOGY TRANSFER TELECOMMUNICATIONS TERMS OF TRADE TOTAL COSTS TRADE COSTS TRADE DATA TRADE FACILITATION TRADE FLOWS TRADE LIBERALIZATION TRADE MODELS TRADE MORE TRADE PARTNERS TRADE PATTERN TRADE PATTERNS TRANSPORT COSTS TURNOVER UNEMPLOYMENT UNIT OF CAPITAL UNSKILLED LABOR UTILITY FUNCTION VALUE OF EXPORTS VALUE OF TRADE VARIABLE COSTS WAGES
spellingShingle	ADVERTISING AGGREGATE DEMAND AIM AIRCRAFT AVERAGE PRICE AVERAGE PRICES BILATERAL TRADE BRANDS CAPITAL STOCK CFS CLOSED ECONOMY COMMERCIAL POLICY COMMODITY COMMON MARKET COMPARATIVE ADVANTAGE COMPETITION EFFECT COMPETITIVENESS CONSTANT ELASTICITY OF SUBSTITUTION CONSTANT RETURNS TO SCALE CONSUMER PRICES CONSUMERS CURRENCY DEMAND FUNCTION DEVELOPMENT ECONOMICS DOMESTIC MARKET DOMESTIC PRODUCTION ECONOMIC GEOGRAPHY ECONOMIC SIZE ECONOMIC THEORY ELASTICITY ELASTICITY OF SUBSTITUTION EXOGENOUS VARIABLES EXPENDITURE EXPORT MARKET EXPORT MARKETS EXPORT PERFORMANCE EXPORT PRICE EXPORT PRICES EXPORT TRADE EXPORTERS EXPORTS FACTOR ENDOWMENTS FACTOR PRICE FACTOR PRICES FIXED COSTS FOREIGN DIRECT INVESTMENT FOREIGN MARKET FOREIGN PRODUCERS FOREIGN SALES FREE TRADE FREIGHT FREIGHT COSTS FREIGHT RATES FUTURE RESEARCH FUTURE STUDIES GDP GRAVITY EQUATION GRAVITY MODEL HARMONIZED SYSTEM HOME MARKET HUMAN CAPITAL IMPACT OF TRADE IMPORT PENETRATION INCOME EFFECT INCOME LEVELS INCREASING RETURNS INDUSTRIAL ECONOMICS INDUSTRY TRADE INTERNATIONAL MARKETS INTERNATIONAL TRADE LABOR MARKET MANUFACTURING MARGINAL COSTS MARKET ACCESS MARKET COMPETITION MARKET SHARE MARKET SIZE MARKET SIZE EFFECTS MEASURE OF TRADE MONOPOLISTIC COMPETITION NATIONAL INCOME NET EXPORTER NOMINAL PRICE PATTERN OF TRADE PATTERNS OF TRADE PER CAPITA INCOME PERFECT COMPETITION POLITICAL ECONOMY PRICE COMPETITION PRICE DISCRIMINATION PRICE MECHANISM PRODUCT DIFFERENTIATION PRODUCT QUALITY PRODUCTIVITY PROFIT FUNCTIONS SALES SHIPMENTS SHIPPING SHIPPING COSTS SOUTH AMERICAN SPECIALIZATION SUPPLIERS TARIFF DATA TECHNOLOGY TRANSFER TELECOMMUNICATIONS TERMS OF TRADE TOTAL COSTS TRADE COSTS TRADE DATA TRADE FACILITATION TRADE FLOWS TRADE LIBERALIZATION TRADE MODELS TRADE MORE TRADE PARTNERS TRADE PATTERN TRADE PATTERNS TRANSPORT COSTS TURNOVER UNEMPLOYMENT UNIT OF CAPITAL UNSKILLED LABOR UTILITY FUNCTION VALUE OF EXPORTS VALUE OF TRADE VARIABLE COSTS WAGES Helble, Matthias Okubo, Toshihiro Heterogeneous Quality Firms and Trade Costs
relation	Policy Research Working Paper; No. 4550
description	There is increasing empirical evidence that vertical product differentiation is an important determinant of international trade. However, the economic literature so far has solely focused on the case in which quality trade stems from differences between countries. No studies investigate the role of quality trade between similar economies. This paper first develops a simple theoretical trade model that includes vertical product differentiation in a heterogeneous-firm framework. The model yields three main predictions for trade between similar economies. First, exported goods are of higher quality than goods sold on the domestic market. Second, larger economies have on average higher export qualities compared with smaller economies. Third, with increasing trade costs higher quality goods are exchanged. For all three effects, strong empirical support is found using detailed export trade data of the United States and 15 European Union countries.
format	Publications & Research :: Policy Research Working Paper
author	Helble, Matthias Okubo, Toshihiro
author_facet	Helble, Matthias Okubo, Toshihiro
author_sort	Helble, Matthias
title	Heterogeneous Quality Firms and Trade Costs
title_short	Heterogeneous Quality Firms and Trade Costs
title_full	Heterogeneous Quality Firms and Trade Costs
title_fullStr	Heterogeneous Quality Firms and Trade Costs
title_full_unstemmed	Heterogeneous Quality Firms and Trade Costs
title_sort	heterogeneous quality firms and trade costs
publisher	World Bank, Washington, DC
publishDate	2012
url	http://documents.worldbank.org/curated/en/2008/03/9069456/heterogeneous-quality-firms-trade-costs http://hdl.handle.net/10986/6558
_version_	1764400479616368640

Heterogeneous Quality Firms and Trade Costs

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