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Quality differentiation, comparative advantage, and international specialization across products

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  • Schetter, Ulrich

Abstract

This paper introduces quality differentiation into a Ricardian model of international trade following Costinot (2009a). It shows (1) how quality differentiation can help industrialized countries to be active across the full board of products, complex and simple ones, while developing countries systematically specialize in simple products, in line with novel stylized facts. (2) Quality differentiation may thus help to explain why richer countries tend to be more diversified and why, increasingly over time, rich and poor countries tend to export the same products. (3) The analysis reveals a novel supply-side channel through which quality differentiation can increase the gains from inter-product (industry) trade for developing countries relative to industrialized countries.

Suggested Citation

  • Schetter, Ulrich, 2024. "Quality differentiation, comparative advantage, and international specialization across products," European Economic Review, Elsevier, vol. 170(C).
    • Handle: RePEc:eee:eecrev:v:170:y:2024:i:c:s0014292124001983
    DOI: 10.1016/j.euroecorev.2024.104869
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    References listed on IDEAS

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    1. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    2. Arnaud Costinot & Dave Donaldson & Ivana Komunjer, 2012. "What Goods Do Countries Trade? A Quantitative Exploration of Ricardo's Ideas," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 79(2), pages 581-608.
    3. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
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    Cited by:

    1. Ulrich Schetter & Dario Diodato & Eric S. M. Protzer & Frank Neffke & Ricardo Hausmann, 2024. "From Products to Capabilities: Constructing A Genotypic Product Space," Growth Lab Working Papers 230, Harvard's Growth Lab.
    2. Ulrich Schetter, 2019. "A Structural Ranking of Economic Complexity," CID Working Papers 119a, Center for International Development at Harvard University.
    3. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(3).
    4. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," Growth Lab Working Papers 171, Harvard's Growth Lab.
    5. Balland, Pierre-Alexandre & Broekel, Tom & Diodato, Dario & Giuliani, Elisa & Hausmann, Ricardo & O'Clery, Neave & Rigby, David, 2022. "Reprint of The new paradigm of economic complexity," Research Policy, Elsevier, vol. 51(8).
    6. Dario Diodato & Ricardo Hausmann & Ulrich Schetter, 2022. "A Simple Theory of Economic Development at the Extensive Industry Margin," CID Working Papers 416, Center for International Development at Harvard University.
    7. Gersbach, Hans & Schetter, Ulrich & Schmassmann, Samuel, 2023. "From local to global: A theory of public basic research in a globalized world," European Economic Review, Elsevier, vol. 160(C).
    8. Gersbach, Hans & Schetter, Ulrich & Schmassmann, Samuel, 2018. "From Local to Global: A Unified Theory of Public Basic Research," Economics Working Paper Series 1816, University of St. Gallen, School of Economics and Political Science.
    9. Frank Neffke & Angelica Sbardella & Ulrich Schetter & Andrea Tacchella, 2024. "Economic Complexity Analysis," Papers in Evolutionary Economic Geography (PEEG) 2430, Utrecht University, Department of Human Geography and Spatial Planning, Group Economic Geography, revised Oct 2024.

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    More about this item

    Keywords

    Comparative advantage; Economic complexity; Export diversification; Log-supermodularity; Nestedness; Product complexity; Quality differentiation;
    All these keywords.

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development

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