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Import Competition, Quality Upgrading, and Exporting: Evidence from the Peruvian Apparel Industry

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  • Pamela Medina

    (UTSC and Rotman School of Management)

Abstract

This paper studies quality upgrading to escape competition from low-wage countries and proposes a new channel that does not rely on access to new inputs or markets. Informed by Peruvian apparel firms’ response to China’s WTO accession, I introduce factor specificity in a multi-product-firm model. Profitability losses due to competition in low-quality segments induce firms to reallocate specific factors to produce high-quality varieties for high-income countries. Gains from this channel are large. Using an observed quality measure, I show that import competition substantially increases domestic firms’ exports and high-quality export shares. Firms also reduce prices, resulting in additional welfare gains.

Suggested Citation

  • Pamela Medina, 2024. "Import Competition, Quality Upgrading, and Exporting: Evidence from the Peruvian Apparel Industry," The Review of Economics and Statistics, MIT Press, vol. 106(5), pages 1285-1300, September.
    • Handle: RePEc:tpr:restat:v:106:y:2024:i:5:p:1285-1300
    DOI: 10.1162/rest_a_01221
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