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Inventory Management, Product Quality, and Cross-Country Income Differences

Author

Listed:
  • Bernardo S. Blum
  • Sebastian Claro
  • Kunal Dasgupta
  • Ignatius J. Horstmann
Abstract
Previous research has documented that export shipments are "lumpy"—exporters make infrequent and relatively large shipments to any given export destination. This fact has been interpreted as implying that fixed, per shipment cost and inventory management decisions play a key role in international trade. We document here that exports from poor countries are considerably more lumpy—have higher fixed per shipment cost—than those from rich countries. Using a model of trade with inventory management, we estimate that the country at the ninetieth percentile of the distribution of per shipment costs has almost three times higher costs than the one at the tenth percentile. We show that these per shipment cost differences have a reduced-form representation given by an ad valorem trade cost that varies with export country income (as in Waugh 2010). A calibrated version of the model that incorporates these estimates and allows for endogenous product quality reveals that cross-country differences in per shipment costs explain almost 40 percent of the observed cross-country differences in income. It also shows that policies that lower per shipment costs can lead to significant welfare gains, mainly due to induced quality upgrading.

Suggested Citation

  • Bernardo S. Blum & Sebastian Claro & Kunal Dasgupta & Ignatius J. Horstmann, 2019. "Inventory Management, Product Quality, and Cross-Country Income Differences," American Economic Journal: Macroeconomics, American Economic Association, vol. 11(1), pages 338-388, January.
    • Handle: RePEc:aea:aejmac:v:11:y:2019:i:1:p:338-88
    Note: DOI: 10.1257/mac.20170080
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    Citations

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    Cited by:

    1. Xiaotao Zhao & Xiaoping Chen, 2022. "Inventory Management with Trade Policy Uncertainty," China & World Economy, Institute of World Economics and Politics, Chinese Academy of Social Sciences, vol. 30(5), pages 128-153, September.
    2. David Gomtsyan & Alexander Tarasov, 2022. "Exporting costs and multi‐product shipments," Scandinavian Journal of Economics, Wiley Blackwell, vol. 124(4), pages 990-1023, October.
    3. Marcela Eslava & James Tybout & David Jinkins & C. Krizan & Jonathan Eaton, 2015. "A Search and Learning Model of Export Dynamics," 2015 Meeting Papers 1535, Society for Economic Dynamics.
    4. Xiaotao Zhao & Xiaoping Chen, 2020. "Export And Inventory: Evidence From Chinese Firms," The Singapore Economic Review (SER), World Scientific Publishing Co. Pte. Ltd., vol. 65(02), pages 403-417, March.
    5. Alessandria, George & Khan, Shafaat Yar & Khederlarian, Armen, 2024. "Taking stock of trade policy uncertainty: Evidence from China’s pre-WTO accession," Journal of International Economics, Elsevier, vol. 150(C).
    6. Ana P. Fernandes & Heiwai Tang, 2020. "Fast Fashion: Theory and Evidence from Portuguese Textile and Clothing Firms," CESifo Working Paper Series 8125, CESifo.

    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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