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The Determinants of Quality Specialization

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  • Jonathan I. Dingel

Abstract

A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy. Fajgelbaum, Grossman, and Helpman (2011) formalize the Linder hypothesis that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant, high-income locations export skill-intensive, high-quality products. Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on US manufacturing plants' shipments and factor inputs to quantify the two mechanisms' roles in quality specialization across US cities. Home-market demand explains as much of the relationship between income and quality as differences in factor usage.

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  • Jonathan I. Dingel, 2016. "The Determinants of Quality Specialization," NBER Working Papers 22757, National Bureau of Economic Research, Inc.
    • Handle: RePEc:nbr:nberwo:22757
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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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