Quality, Distance and Trade: A Strategic Approach

Quaderni - Working Paper DSE N0. 717

27 Pages Posted: 3 Dec 2010 Last revised: 5 May 2012

See all articles by Emanuele Bacchiega

Emanuele Bacchiega

University of Bologna - Department of Economics

Antonio Minniti

University of Bologna

Arsen Palestini

MEMOTEF - Sapienza University of Rome

Date Written: May 3, 2012

Abstract

This paper contributes to the literature on distance and quality by identifying a firm-based force contributing to explain the observed increase of the quality of shipped goods with the distance of their destination market. This force originates from the influence of distance on firms' strategic behavior when the quality level of goods is a choice variable for them, and complements the ones already proposed in the literature. Our approach differs from the extant literature because it does not rely on technology or preference/income differentials to identify the determinants and drivers of trade flows. Moreover, it allows to clearly disentangle between the price setting and quality choice of firms. We find that distance has an unambiguously positive effect on the average quality of traded goods. Our results suit the empirical evidence on distance and quality and contribute to the analysis of the determinants of firms' trade performance.

Keywords: Product Quality, Destination Market, Strategic Interaction

JEL Classification: L13, F10

Suggested Citation

Bacchiega, Emanuele and Minniti, Antonio and Palestini, Arsen, Quality, Distance and Trade: A Strategic Approach (May 3, 2012). Quaderni - Working Paper DSE N0. 717. Available at SSRN: https://ssrn.com/abstract=1717785 or http://dx.doi.org/10.2139/ssrn.1717785

Emanuele Bacchiega (Contact Author)

University of Bologna - Department of Economics ( email )

Piazza Scaravilli 2
40126 Bologna, 40125
Italy
+390512098486 (Phone)
+390512098493 (Fax)

Antonio Minniti

University of Bologna ( email )

Piazza Scaravilli 2
Bologna, 40100
Italy

Arsen Palestini

MEMOTEF - Sapienza University of Rome ( email )

Via del Castro Laurenziano
Roma, Rome 00185
Italy

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