Price, Quality and Trade Costs in the Food Sector

Recent developments in international trade theory have placed growing emphasis on the quality of products, showing that it affects countries’ export performances. However, as quality is unobservable, a measurement problem emerges. In this paper we apply some of the most recent methods to estimate quality of traded products. We focus on the food sector, where the growing attention on quality and safety issues is leading to an increase in the demand for high quality products. In the first part of our empirical analysis, we investigate the properties of the estimated qualities. We find that, in contrast with what often is assumed in the literature, quality and prices are imperfectly correlated. The second empirical section is dedicated to the study of the relationship between price vs. quality and trade costs. It emerges that the price and the quality of food exports are influenced differently by ad valorem and specific trade costs.