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Quality‐cum‐price sorting
Author(s) -
Jäkel Ina C.,
Sørensen Allan
Publication year - 2020
Publication title -
the world economy
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.594
H-Index - 68
eISSN - 1467-9701
pISSN - 0378-5920
DOI - 10.1111/twec.12931
Subject(s) - sorting , quality (philosophy) , economics , product (mathematics) , sample (material) , portfolio , production (economics) , econometrics , microeconomics , monetary economics , financial economics , mathematics , philosophy , chemistry , geometry , epistemology , algorithm , chromatography
This paper provides new evidence on how export status relates to prices and product quality. Using firm‐product‐level data on production, exports and imports for a sample of Danish manufacturing firms, we present three key correlations. First, exported varieties are on average sold at lower prices relative to only domestically sold varieties. Second, exported varieties have higher quality measured by ‘demand residuals’ (i.e., they have larger sales conditional on price). Finally, exported varieties are produced using cheaper imported intermediates. We introduce the term ‘quality‐cum‐price sorting’ to describe this sorting environment. The observed sorting behaviour in terms of output quality and import prices works not just across firms, but also within multi‐product firms across the product portfolio. In contrast, the negative exporter premium in terms of output prices vanishes once firm‐level unobservables are accounted for—consistent with the idea that unobserved firm efficiency is driving the negative correlation.