Trade Liberalization, Quality, and Export Prices

38 Pages Posted: 18 May 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)

Multiple version iconThere are 3 versions of this paper

Date Written: November 1, 2014

Abstract

This paper presents theory and evidence from highly disaggregated Chinese data that tariff reductions induce a country's producers to upgrade the quality of the goods that they export. The paper first documents two stylized facts regarding the effect of trade liberalization on export prices and its relation with product differentiation. Next, the paper develops a simple analytic framework that relates a firm's choice of quality to its access to imported intermediates. The model predicts that a reduction in the import tariff induces an incumbent importer/exporter to increase the quality of its exports 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 for quality differentiation is small. The predictions are consistent with the stylized facts based on Chinese data and robust to various estimation specifications.

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

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; HKUST IEMS Working Paper Series. Available at SSRN: https://ssrn.com/abstract=2607386

Haichao Fan (Contact Author)

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

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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