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Quality Selection, Sectoral Heterogeneity and Chinese Exports
Author(s) -
Kneller Richard,
Yu Zhihong
Publication year - 2016
Publication title -
review of international economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.513
H-Index - 58
eISSN - 1467-9396
pISSN - 0965-7576
DOI - 10.1111/roie.12241
Subject(s) - economics , quality (philosophy) , product (mathematics) , gravity model of trade , aggregate (composite) , construct (python library) , econometrics , selection (genetic algorithm) , unit (ring theory) , bilateral trade , microeconomics , international trade , china , computer science , philosophy , materials science , geometry , mathematics , mathematics education , epistemology , artificial intelligence , law , political science , composite material , programming language
Recent models of international trade have identified product quality as an important determinant of bilateral trade flows. In this paper we examine the relationship between the characteristics of the export market and the aggregate quality of products using Chinese data. We find evidence that product unit values vary with standard gravity variables in a different manner across sectors of the Chinese economy and run contrary to earlier findings for the USA. These results are not compatible with existing heterogeneous firm trade models with constant mark‐up and the extension to include product quality. We construct a heterogeneous firm trade model with quality differences and spatial price discrimination, and show that the model provides plausible explanations for our empirical finds as well as other existing findings in the literature.