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Quality Differentiation, Comparative Advantage, and International Specialization Across Products

Author

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  • Ulrich Schetter

    (Center for International Development at Harvard University)

Abstract

We introduce quality differentiation into a Ricardian model of international trade. We show that (1) quality differentiation allows 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) Quality differentiation implies that the gains from inter-product trade mostly accrue to developing countries. (4) Guided by our theory, we use a censored regression model to estimate the link between a country’s GDP per capita and its export quality. We find a much stronger relationship than when using OLS, in line with our theory.

Suggested Citation

  • Ulrich Schetter, 2020. "Quality Differentiation, Comparative Advantage, and International Specialization Across Products," Growth Lab Working Papers 155, Harvard's Growth Lab.
  • Handle: RePEc:glh:wpfacu:155
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    Cited by:

    1. 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.
    2. 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.
    3. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," Growth Lab Working Papers 171, Harvard's Growth Lab.
    4. 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).
    5. Ulrich Schetter, 2019. "A Structural Ranking of Economic Complexity," Growth Lab Working Papers 148, Harvard's Growth Lab.
    6. Schetter, Ulrich, 2024. "Quality differentiation, comparative advantage, and international specialization across products," European Economic Review, Elsevier, vol. 170(C).
    7. 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.
    8. 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).
    9. 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).
    10. 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.

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    More about this item

    Keywords

    Comparative Advantage; Export Diversification; Nestedness; Product Complexity; Quality Differentiation;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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