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Trade Liberalization, Quality, and Export Prices

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  • Haichao Fan
  • Yao Amber Li
  • Stephen R. Yeaple

Abstract

This paper presents theory and evidence from highly disaggregated Chinese data that tariff reductions induce a country's producers to upgrade the quality of the goods that they export. The paper first documents two stylized facts regarding the effect of trade liberalization on export prices and its relation with product differentiation. Next, the paper develops a simple analytic framework that relates a firm's choice of quality to its access to imported intermediates. The model predicts that a reduction in the import tariff induces an incumbent importer/exporter to increase the quality of its exports and to raise its export price in industries where the scope for quality differentiation is large while to lower its export price in industries where the scope for quality differentiation is small. The predictions are consistent with the stylized facts based on Chinese data and robust to various estimation specifications.

Suggested Citation

  • Haichao Fan & Yao Amber Li & Stephen R. Yeaple, 2014. "Trade Liberalization, Quality, and Export Prices," NBER Working Papers 20323, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:20323
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    JEL classification:

    • F0 - International Economics - - General
    • F1 - International Economics - - Trade
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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