Journal
QUARTERLY JOURNAL OF ECONOMICS
Volume 126, Issue 1, Pages 417-474Publisher
OXFORD UNIV PRESS INC
DOI: 10.1093/qje/qjq003
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We develop a method for decomposing countries' observed export prices into quality versus quality-adjusted components using information contained in trade balances. Holding observed export prices constant, countries with trade surpluses are inferred to offer higher quality than countries running trade deficits. We account for variation in trade balances induced by horizontal and vertical differentiation, and we estimate the evolution of manufacturing quality for top exporters from 1989 to 2003. We find that observed unit value ratios can be a poor approximation for relative quality differences, countries' quality is converging more rapidly than their income, and countries appear to vary in terms of displaying high-quality versus low-price growth strategies. JEL Codes: F1, F2, F4.
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