Trade Liberalization, Quality, and Export Prices

36 Pages Posted: 11 Nov 2013 Last revised: 25 Jan 2015

See all articles by Haichao Fan

Haichao Fan

Shanghai University of Finance and Economics - School of International Business Administration

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies)

Stephen R. Yeaple

Pennsylvania State University - College of the Liberal Arts - Department of Economic; National Bureau of Economic Research (NBER)

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Date Written: November 1, 2014

Abstract

This paper presents theory and evidence from disaggregated Chinese data that tariff reductions induce a country's producers to upgrade the quality of their exports. The paper first documents stylized facts regarding the effect of trade liberalization on export prices. Next, an analytic framework is developed that relates a firm's choice of quality to its access to imported intermediates. In the model a reduction in import tariffs induces a firm to increase export quality and to raise its export price in industries where the scope for quality differentiation is large while to lower its export price in industries where the scope is small. The predictions are consistent with the stylized facts and are highly robust econometrically.

Keywords: trade liberalization, tariff, quality, export price, quality upgrading

JEL Classification: F12, F14

Suggested Citation

Fan, Haichao and Li, Yao Amber and Yeaple, Stephen R., Trade Liberalization, Quality, and Export Prices (November 1, 2014). Review of Economics and Statistics, Forthcoming. Available at SSRN: https://ssrn.com/abstract=2352155 or http://dx.doi.org/10.2139/ssrn.2352155

Haichao Fan

Shanghai University of Finance and Economics - School of International Business Administration ( email )

777 Guo-ding Road
Shanghai, 200433
China

Yao Amber Li

Hong Kong University of Science and Technology - School of Business and Management, Department of Economics; HKUST IEMS (Institute for Emerging Market Studies) ( email )

Department of Economics, Hong Kong U of Sci&Tech
Clear Water Bay, Kowloon, Hong Kong SAR, China
Kowloon
Hong Kong

HOME PAGE: http://yaoli.people.ust.hk/

Stephen R. Yeaple (Contact Author)

Pennsylvania State University - College of the Liberal Arts - Department of Economic ( email )

524 Kern Graduate Building
University Park, PA 16802-3306
United States
8148655452 (Phone)

National Bureau of Economic Research (NBER)

1050 Massachusetts Avenue
Cambridge, MA 02138
United States

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