Quality selection, sectoral heterogeneity and Chinese exports

Kneller, Richard; Yu, Zhihong

Abstract

Recent models of international trade have identified product quality as an important determinant of bilateral trade flows. In this paper we examine the relationship between the characteristics of the export market and the aggregate quality of products using Chinese data. We find evidence that product unit values vary with standard gravity variables in a different manner across sectors of the Chinese economy, and run contrary to earlier findings for the U.S. These results are not compatible with existing heterogeneous firm trade models with constant mark-up such as Melitz (2003) model and its extension to include product quality by Baldwin and Harrigan (2011). We construct a heterogeneous firm trade model with quality differences as in Baldwin and Harrigan (2011) and spatial price discrimination based on Melitz and Ottaviano (2008), and show that the model provides plausible explanations for our empirical finds as well as other existing findings in the literature.

Citation

Kneller, R., & Yu, Z. (2016). Quality selection, sectoral heterogeneity and Chinese exports. Review of International Economics, 24(4), 857-874. https://doi.org/10.1111/roie.12241

• Journal Article Type: Article
• Acceptance Date: Jan 4, 2016
• Online Publication Date: Jun 27, 2016
• Publication Date: Sep 1, 2016
• Deposit Date: May 21, 2016
• Publicly Available Date: Jun 27, 2016
• Journal: Review of International Economics
• Print ISSN: 0965-7576
• Electronic ISSN: 1467-9396
• Publisher: Wiley
• Peer Reviewed: Peer Reviewed
• Volume: 24
• Issue: 4
• Pages: 857-874
• DOI: https://doi.org/10.1111/roie.12241
• Keywords: product quality; heterogeneous firms; Chinese exports
• Public URL: https://nottingham-repository.worktribe.com/output/803027
• Publisher URL: http://onlinelibrary.wiley.com/doi/10.1111/roie.12241/abstract
• Additional Information: This is the peer reviewed version of the following article: Kneller, R. and Yu, Z. (2016), Quality Selection, Sectoral Heterogeneity and Chinese Exports. Review of International Economics, 24: 857–874. doi:10.1111/roie.12241, which has been published in final form at: http://onlinelibrary.wiley.com/doi/10.1111/roie.12241/abstract. This article may be used for non-commercial purposes in accordance with Wiley Terms and Conditions for Self-Archiving.
• Contract Date: May 21, 2016