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Product Quality and Intra-Industry Trade

Author

Listed:
  • Tadashi Ito
  • Toshihiro Okubo
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 (2006) and Schott (2008). Our results support Xu (2010), 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 (2006).

Suggested Citation

  • Tadashi Ito & Toshihiro Okubo, 2014. "Product Quality and Intra-Industry Trade," CAMA Working Papers 2014-74, Centre for Applied Macroeconomic Analysis, Crawford School of Public Policy, The Australian National University.
    • Handle: RePEc:een:camaaa:2014-74
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    File URL: https://cama.crawford.anu.edu.au/sites/default/files/publication/cama_crawford_anu_edu_au/2014-12/74_2014_ito_okubo.pdf
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    References listed on IDEAS

    as
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    4. Manuel Cabral & Joana Silva, 2006. "Intra-Industry Trade Expansion and Employment Reallocation between Sectors and Occupations," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 142(3), pages 496-520, October.

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    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration

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