OECD Imports: Diversification of Suppliers and Quality Search

30 Pages Posted: 5 Feb 2015

See all articles by Olivier Cadot

Olivier Cadot

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne); Centre for Economic Policy Research (CEPR); World Bank

Céline Carrère

University of Geneva

Vanessa Strauss‐Kahn

ESCP Europe; Centre d'Etudes Prospectives et d'Info. Internationales (CEPII)

Multiple version iconThere are 2 versions of this paper

Date Written: December 1, 2013

Abstract

We posit that OECD buyers are in a continuous search for best quality suppliers from developing countries. We build a simple model of adverse selection and quality screening which captures this feature. The model predicts that diversification happens by “bouts”, or temporary episodes, during which OECD buyers search for high-quality suppliers. Each diversification episode is followed by a phase of re-concentration on the best performers, until those fail (which happens stochastically), triggering new search phases. The model also shows that concentration across origin is highly volatile, especially for goods with high-quality heterogeneity. Finally, as the set of suppliers expands and buyers continue sampling, the overall trend is an increased diversification across time. We empirical explore these conjectures using OECD imports over time (1963-2006) and measuring their concentration across 250 origin countries at the product level (1300 products). We provide strong empirical evidence corroborating the model predictions.

Keywords: Import diversification, International trade, OECD, developing countries, suppliers search

JEL Classification: F1, O11

Suggested Citation

Cadot, Olivier and Carrère, Céline and Strauss‐Kahn, Vanessa, OECD Imports: Diversification of Suppliers and Quality Search (December 1, 2013). Available at SSRN: https://ssrn.com/abstract=2557539 or http://dx.doi.org/10.2139/ssrn.2557539

Olivier Cadot

University of Lausanne - School of Economics and Business Administration (HEC-Lausanne) ( email )

Unil Dorigny, Batiment Internef
Lausanne, 1015
Switzerland
+41 21 692 3463 (Phone)
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Centre for Economic Policy Research (CEPR)

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United Kingdom

World Bank ( email )

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Céline Carrère

University of Geneva ( email )

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Genève, CH - 1205
Switzerland

Vanessa Strauss‐Kahn (Contact Author)

ESCP Europe ( email )

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France

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Centre d'Etudes Prospectives et d'Info. Internationales (CEPII) ( email )

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