Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade

University of Nottingham, GEP Research Paper 2008/44

35 Pages Posted: 12 Aug 2009

See all articles by Richard Kneller

Richard Kneller

University of Nottingham

Zhihong Yu

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP)

Date Written: November 1, 2008

Abstract

Recent models of international trade have identified product quality as an important determinant of bilateral trade flows. Yet relatively little is understood about the relationship between the characteristics of the export market and the quality of products. In this paper we examine this link using Chinese data. We find evidence that product unit values vary with standard gravity variables in a different manner across sectors of the Chinese economy, and run contrary to earlier findings for the U.S. These results are not compatible with existing heterogeneous firm trade models such as Melitz (2003) model and its extension to include product quality by Baldwin and Harrigan (2007). To explain these differences we propose a heterogeneous firm trade model with quality differences and spatial price discrimination based on Melitz and Ottaviano (2007).

Keywords: product quality, heterogeneous firms, Chinese exports

JEL Classification: F1, F12

Suggested Citation

Kneller, Richard and Yu, Zhihong, Quality Selection, Chinese Exports and Theories of Heterogeneous Firm Trade (November 1, 2008). University of Nottingham, GEP Research Paper 2008/44. Available at SSRN: https://ssrn.com/abstract=1446652 or http://dx.doi.org/10.2139/ssrn.1446652

Richard Kneller (Contact Author)

University of Nottingham ( email )

University Park
Nottingham, NG8 1BB
United Kingdom

Zhihong Yu

University of Nottingham - Leverhulme Centre for Research on Globalisation and Economic Policy (GEP) ( email )

University Park
Nottingham, NG7 2RD
United Kingdom

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