Competition and Quality Upgrading

35 Pages Posted: 11 Jan 2010

See all articles by Mary Amiti

Mary Amiti

Federal Reserve Bank of New York

Amit Khandelwal

Columbia Business School - Finance and Economics; National Bureau of Economic Research (NBER); Bureau for Research and Economic Analysis of Development (BREAD)

Multiple version iconThere are 2 versions of this paper

Date Written: November 2009

Abstract

How does competition affect innovation? We address this question by using a novel approach to measure quality - an important component of innovation - using highly disaggregated product data for a large set of countries. Constructing an internationally comparable measure of quality enables us to separate the effect of reducing import tariffs, our measure of competition, on quality upgrading from other country level differences in competitive environments, and product demand shocks. We base our analysis on recent theoretical frameworks that predict that the effect of competition on innovation depends on firmsÂ’ proximity to the world technological frontier. As predicted by theory, we find that lower tariffs are associated with quality upgrading for products close to the world frontier; whereas lower tariffs discourage quality upgrading for varieties distant from the frontier.

Keywords: Competition, Growth, Proximity to Frontier, Quality Upgrading

JEL Classification: F1

Suggested Citation

Amiti, Mary and Khandelwal, Amit Kumar, Competition and Quality Upgrading (November 2009). CEPR Discussion Paper No. DP7562. Available at SSRN: https://ssrn.com/abstract=1533167

Mary Amiti (Contact Author)

Federal Reserve Bank of New York ( email )

33 Liberty Street
New York, NY 10045
United States

Amit Kumar Khandelwal

Columbia Business School - Finance and Economics ( email )

3022 Broadway
New York, NY 10027
United States

HOME PAGE: http://www0.gsb.columbia.edu/faculty/akhandelwal/

National Bureau of Economic Research (NBER) ( email )

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

HOME PAGE: http://www.nber.org/people/amit_khandelwal

Bureau for Research and Economic Analysis of Development (BREAD) ( email )

Duke University
Durham, NC 90097
United States

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