Quality Sorting and Trade: Firm-Level Evidence for French Wine

41 Pages Posted: 15 Jul 2009

See all articles by Matthieu Crozet

Matthieu Crozet

Université Paris I Panthéon-Sorbonne - TEAM

Keith Head

University of British Columbia (UBC) - Sauder School of Business

Thierry Mayer

Université Paris I Panthéon-Sorbonne - TEAM; Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS); CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris; Centre for Economic Policy Research (CEPR)

Date Written: May 2009

Abstract

Investigations of the effect of quality differences on heterogeneous performance in exporting have been limited by lack of direct measures of quality. We examine exports of French wine, matching the exporting firms to producer ratings from two wine guides. We show that high quality producers export to more markets, charge higher prices, and sell more in each market. More attractive markets are served by exporters that, on average, make lower rated Champagne. Market attractiveness has a weakly negative effect on prices and a strongly positive effect on quantities, confirming the sign predictions of a simple quality sorting model.

Methodologically, we make several contributions to the literature. First, we propose an estimation method for regressions of firm-level exports on ability measures and use Monte Carlo simulations to show that it corrects a severe selection bias present in OLS estimates. Second, we show how the means of quality, price, and quantity for exporters to a given market can be used to recover estimates of core parameters (which we compare with firm-level estimates) and discriminate between productivity and quality-sorting versions of the Melitz model. Our new method regresses country means on an index of each country's attractiveness and the fixed costs of entering it. We compare our method, which utilizes explanatory variables estimated in the firm-level regressions, to the conventional approach that relies on a reduced-form relationship with proxies for attractiveness and fixed costs.

Keywords: gravity, heterogeneity, quality, trade

JEL Classification: F12

Suggested Citation

Crozet, Matthieu and Head, Keith Charles and Mayer, Thierry, Quality Sorting and Trade: Firm-Level Evidence for French Wine (May 2009). CEPR Discussion Paper No. DP7295. Available at SSRN: https://ssrn.com/abstract=1433890

Matthieu Crozet

Université Paris I Panthéon-Sorbonne - TEAM ( email )

106-112 boulevard de l'hôpital
Cedex 13 Paris, P75647
France
+33 1 4407 8267 (Phone)
+33 1 4407 8267 (Fax)

Keith Charles Head

University of British Columbia (UBC) - Sauder School of Business ( email )

2053 Main Mall
Vancouver, BC V6T 1Z2
Canada
604-822-8492 (Phone)
604-822-8477 (Fax)

Thierry Mayer (Contact Author)

Université Paris I Panthéon-Sorbonne - TEAM ( email )

106-112 boulevard de l'hôpital
Cedex 13 Paris, P75647
France

HOME PAGE: http://team.univ-paris1.fr/teamperso/mayer/thierry.htm

Ecole Nationale des Ponts et Chaussées (ENPC) - Centre d'Enseignement et de Recherche en Analyse Socio-Economique (CERAS) ( email )

28, rue des Saints-Peres
75007 Paris
France
+33 1 4407 8267 (Phone)
+33 1 4407 8267 (Fax)

CEPII, Centre d'Etudes Prospectives et d'Info. Internationales, Paris ( email )

9 Rue Georges Pitard
Paris Cedex 15, F-75015
France

HOME PAGE: http://www.cepii.fr/anglaisgraph/pagepers/mayer.htm

Centre for Economic Policy Research (CEPR)

London
United Kingdom

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