PRODUCT QUALITY AND INTRA-INDUSTRY TRADE

TADASHI ITO, Toshihiro Okubo

Research output: Contribution to journalArticle

1 Citation (Scopus)

Abstract

In this study, we argue that the conventional intra-industry trade (IIT) index does not directly address the quality issue and propose a methodology to make full use of unit price gap information to deduce quality differences between simultaneously exported and imported products. By applying this measure to German trade data at the eight-digit level, we study the quality change of Chinese export goods in its IIT with Germany. We compare the case of China with those of Eastern European countries, which are also major trading partners of Germany. Our results show that the unit value difference in IIT between Germany and Eastern European countries is clearly narrowing. However, China's export prices to Germany are much lower than Germany's export prices to China, and this gap has not narrowed over the last 23 years. This is at odds with the common perception that China's product quality has improved, as documented by Rodrik [Rodrik, D (2006). Whats so special about China's exports? China and World Economy, 14(5), 1–19.] and Schott [Schott, P (2008). The Relative sophistication of Chinese exports. Economic Policy, 53, 5–49.]. Our results support Xu [Xu, B (2010). The sophistication of exports: Is China special? China Economic Review, 21(3), 482–493.], which argued that incorporating the quality aspect of the exported goods weakens or even eliminates the evidence of the sophistication of Chinese export goods in Rodrik [Rodrik, D (2006). Whats so special about China's exports? China and World Economy, 14(5), 1–19.].

Original languageEnglish
JournalSingapore Economic Review
DOIs
Publication statusAccepted/In press - 2015

Fingerprint

China
Germany
Product quality
Intra-industry trade
China's export
Sophistication
European countries
World economy
China's economy
Export prices
Economic policy
Economics
Methodology
Unit values

ASJC Scopus subject areas

  • Economics and Econometrics

Cite this

PRODUCT QUALITY AND INTRA-INDUSTRY TRADE. / ITO, TADASHI; Okubo, Toshihiro.

In: Singapore Economic Review, 2015.

Research output: Contribution to journalArticle

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