Product Quality and the Direction of Trade

JUAN CARLOS HALLAK

Journal of International Economics

North-Holland

Año: 2006 vol. 68 p. 238 - 265

0022-1996

Este trabajo aparece como uno de los 28 “core papers” en el mapa del Research Front “Direction of Trade Agreements, Outsourcing and Wages”, seleccionado por Science Watch (Thompson-Reuters) como uno de los dos Top Topic Research Fronts en la disciplina “Economía y Negocios” en Agosto de 2008. A substantial amount of theoretical work predicts that quality plays an important role as a determinant of the global patterns of bilateral trade. This paper develops an empirical framework to estimate the empirical relevance of this prediction. In particular, it identifies the effect of quality operating on the demand side through the relationship between per capita income and aggregate demand for quality. The model yields predictions for bilateral flows at the sectoral level, and is estimated using crosssectional data for bilateral trade among 60 countries in 1995. The empirical results confirm the theoretical prediction: rich countries tend to import relatively more from countries that produce high quality goods.