RESEARCH AND ANALYSIS: WORKING PAPERS

The Determinants of Quality Specialization

A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy.

Fajgelbaum, Grossman, and Helpman (JPE 2011) formalize the Linder (1961) conjecture that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant, high-income locations export skill-intensive, high-quality products (Schott, QJE 2004). Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on US manufacturing plants’ shipments and factor inputs to quantify the two mechanisms’ roles in quality specialization across US cities. Home-market demand explains at least as much of the relationship between income and quality as di erences in factor usage.

 

No: ERSD-2014-13

Authors: Jonathan I. Dingel, Columbia University

Manuscript date: January 2014

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This is a working paper, and hence it represents research in progress. The opinions expressed in this paper are those of its authors. They are not intended to represent the positions or opinions of the WTO or its members and are without prejudice to members' rights and obligations under the WTO. Any errors are attributable to the authors.

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