Does trade stimulate product quality upgrading?. (November 2013)

• Record Type: Journal Article
• Authors: Fernandes, Ana M.; Paunov, Caroline
• Is Part Of: Canadian journal of economics. Volume 46:Number 4(2013:Nov.)
• Page Start: 1232
• Page End: 1264
• Publication Date: 2013-11
• Subjects: Economics -- Periodicals; 330
• DOI: 10.1111/caje.12047
• Languages: English
• ISSNs: 0008-4085

Abstract

<abstract abstract-type="main" xml:lang="en"> <title>Abstract</title> <p>This paper investigates whether increased import competition leads firms to engage in incremental innovation reflected in product quality upgrading using Chilean manufacturing firm‐product data and measuring product quality with unit values (prices). We identify causal effects of import competition using an effective trade barrier measure – transport costs – as instruments for import penetration ratios across industries. Transport costs have a negative and significant effect on product quality. The evidence suggests that estimated unit value increases capture product quality upgrading, imports' competition effects drive quality upgrading, and benefits depend on firms' industrial specialization. Easier access to intermediate inputs also fosters quality upgrading.</p> </abstract>