Low-Wage Countries' Competition, Reallocation Across Firms and the Quality Content of Exports

62 Pages Posted: 9 Feb 2011

See all articles by Julien Martin

Julien Martin

University of Quebec at Montreal (UQAM)

Isabelle Mejean

Ecole Polytechnique, Paris

Date Written: February 1, 2011

Abstract

What is the impact of low-wage countries' competition on the quality of high-wage countries' exports? To answer this question, we develop a new method that uses firm-level data to measure quality changes in sectoral exports. Over 1995-2005, we measure a 11% increase in the mean quality of France's aggregate exports, driven by a reallocation of demand in favor of higher quality producers. The phenomenon is significantly more pronounced in markets where the penetration of developing countries has increased while it is negative where firms face increased competitive pressures from high-wage countries. These results are consistent with within-product specialization along the vertical dimension. They suggest that, over the period, France has specialized in the production of higher quality goods. In our data, around one fifth of the measured quality improvement in France's aggregate exports is attributable to low-wage countries' competition. In turn, its increasing specialization in higher quality goods has limited France's market share loss over the period.

Keywords: Firm-Level Data, Low-Wage Countries' Competition, Quality Heterogeneity, Within-Product Specialization

JEL Classification: F12, F14

Suggested Citation

Martin, Julien and Mejean, Isabelle, Low-Wage Countries' Competition, Reallocation Across Firms and the Quality Content of Exports (February 1, 2011). CEPR Discussion Paper No. DP8231. Available at SSRN: https://ssrn.com/abstract=1758441

Julien Martin (Contact Author)

University of Quebec at Montreal (UQAM) ( email )

PB 8888 Station DownTown
Succursale Centre Ville
Montreal, Quebec H3C3P8
Canada

Isabelle Mejean

Ecole Polytechnique, Paris ( email )

1 rue Descartes
Paris, 75005
France

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