Essays on Quality Differentiation in International Trade

Kan Yue, Purdue University


This dissertation is composed of two independent chapters. The first chapter evaluates three approaches of estimating import quality. The second chapter studies how technical barriers to trade affects a country’s imports. In the first chapter, I propose a simple test for the robustness of commonly used approaches to quality inference: when purchasing goods from a common set of exporters, do two importers agree on which goods are high quality? This paper examines three most applied approaches (unit values, demand residuals derived from a CES model, and demand residuals derived from an augmented nested logit framework) and calculates the inferred quality of each exporter-product from the perspective of multiple importers. Results from Spearman’s rank correlation tests show that unit values are the most consistent quality measure. Somewhat paradoxically, using additional variables suggested by theory, including import quantity and other controls, worsens the agreement across importers. The nested logit framework generates negative rank correlations in over half the sample. I examine a number of explanations for this troubling result. The second chapter investigates how non-tariff measures, i.e. Technical Barriers to Trade (TBT), affect a country’s imports and studies the heterogeneous effects of TBT on exporters in different quality segments of the market. We match product level bilateral trade data of ten importers to a penal date set of regular TBT notifications over the period of 1996–2007. We find that TBT imposing country experience a 64.5%reduction in total import value at HS 6-digit product level. This is almost entirely explained by smaller import value from existing exporters. In addition, imposing TBT measures leads to smaller trade volume and it is equivalent to a 20% raise in import tariff. We also find evidence on lower import price (unit value) in TBT imposing countries. Further, we show that import quantity falls more in the high-quality segments of the market as a result of imposing TBT measures. Mixed results from unit value regressions suggest that there has been a large significant change in quality rankings of varieties within the same importer*product over time.




Hummels, Purdue University.

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