Hallak, Juan Carlos and Sivadasan, Jagadeesh (2008): Productivity, quality and exporting behavior under minimum quality constraints.
Download (901kB) | Preview
We develop a model of international trade with two sources of firm heterogeneity: "productivity" and "caliber". Productivity is modeled as is standard in the literature. Caliber is the ability to produce quality using few fixed inputs. While there is no quality restriction to sell domestically, exporting requires the attainment of minimum quality levels. Compared to single-attribute models of firm heterogeneity emphasizing either productivity or the ability to produce quality, our model provides a more nuanced characterization of firms' export behavior. In particular, it explains the empirical fact that firm size is not monotonically related with export status; there are small firms that export while there are large firms that only operate in the domestic market. The model also delivers novel testable predictions. Conditional on size, exporters sell products of higher quality and at higher prices, they pay higher wages and use capital more intensively. We test these predictions using data on manufacturing establishments in India, the U.S., Chile, and Colombia. The empirical findings confirm the theoretical predictions.
|Item Type:||MPRA Paper|
|Original Title:||Productivity, quality and exporting behavior under minimum quality constraints|
|Keywords:||Productivity; quality; exports; firm heterogeneity|
|Subjects:||F - International Economics > F1 - Trade > F10 - General
F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation
F - International Economics > F1 - Trade > F14 - Empirical Studies of Trade
|Depositing User:||Juan Carlos Hallak|
|Date Deposited:||30. Jul 2010 08:38|
|Last Modified:||11. May 2015 20:25|
Alessandria; George and Horag Choi, 2007. Do Sunk Costs of Exporting Matter for Net Export Dynamics? Quarterly Journal of Economics, 122 (1): 289-336.
Alchian, Armen A. and William R. Allen, 1964. University Economics: Elements of Inquiry. Belmont, California: Wadsworth.
Alvarez, Roberto and Ricardo A. López, 2005. Exporting and performance: evidence from Chilean plants. Canadian Journal of Economics, 38(4): 1384-1400(17).
Anderson, S. W., Daly, J. D. and M. F. Johnson, 1999. Why Firms Seek ISO 9000 Certification: Regulatory Compliance or Competitive Advantage?. Production and Operations Management, 8 (1): 28-43.
Angrist, J. D., Krueger, A. B., 2001. Instrumental variables and the search for identification: From supply and demand to natural experiments. Journal of Economic Perspectives 15, 69-85.
Arkolakis, Costas, 2008. Market Penetration Costs and Trade Dynamics. Working paper, Yale University.
Aw, Bee Yan and Mark J. Roberts, 1986. Measuring Quality Change in Quota-Constrained Import Markets. Journal of International Economics, 21(1): 45-60.
Aw, Bee Yan; Batra, Geeta and Mark Roberts, 2001. Firm Heterogeneity and Export- Domestic Price Differentials: A Study of Taiwanese Electronics Products. Journal of International Economics, 54 (1): 149-169.
Baldwin, Richard E. and James Harrigan, 2007. Zeros, Quality and Space: Trade Theory and Trade Evidence. NBER Working Papers 13214, National Bureau of Economic Research.
Barnes, Frank, 2000. Good Business Sense Is the Key to Confronting ISO 9000. Review of Business, 21 (1): 11-16.
Barsky, R., Bound, J., Charles, K. K., Lupton, J. P., 2002. Accounting for the black-white wealth gap: A nonparametric approach. Journal of the American Statistical Association 97, 663-673.
Bernard, Andrew B. and J. Bradford Jensen, 1999. Exceptional exporter performance: Cause, effect, or both? Journal of International Economics, 47(1): 1-25.
Bernard, Andrew B., Eaton, J., Jensen, J.B. and Samuel S. Kortum, 2003. Plants and productivity in international trade. American Economic Review, 93 (4): 1268-1290.
Bernard A.B, Redding S., & Schott, S. 2006. Multiproduct firms and trade liberalization. NBER Working Paper, 12782.
Bernard, Andrew B.; Redding, Stephen J. and Peter K. Schott, 2007. Comparative Advantage and Heterogeneous Firms. Review of Economic Studies, 74 (1): 31-66.
Bernard, Andrew B.; Redding, Stephen J. and Peter K. Schott, 2008. Multi-Product Firms and Product Switching. NBER Working Paper.
Boston Consulting Group, 2008. The BCG 50 Local Dynamos. How Dynamic RDE-Based Companies Are Mastering Their Home Markets --and What MNCs Need to Learn from Them.
Brooks, Eileen L., 2006. Why don't firms export more? Product quality and Colombian plants. Journal of Development Economics, 80(1): 160-178.
Brown, A: van der Wiele, T and K. Loughton, 1998. Smaller Enterprises Experiences with ISO 9000. International Journal of Quality & Reliability Management, 15 (3): 273-285.
Bustos, Paula, 2005. The Impact of Trade on Technology and Skill Upgrading: Evidence from Argentina. Working paper, CREI and Universitat Pompeu Fabra.
Buttle, F., 1997. ISO 9000: Marketing Motivations and Benefits. International Journal of Quality & Reliability Management, 14 (9): 936-947.
Carlsson, M. and D. Carlsson, 1996. Experiences of Implementing ISO 9000 in Swedish Industry. International Journal of Quality & Reliability Management, 13 (7): 36-47.
Chaney, Thomas, 2008. Distorted Gravity: The Intensive and Extensive Margins of International Trade. American Economic Review, forthcoming.
Chen, M., T. Otsuki, and J. Wilson, 2006. Do Standards Matter for Export Success? World Bank Policy Research Working Paper 3809.
Clerides, Sofronis, Lach, Saul and James Tybout, 1998. Is Learning by Exporting Important? Micro-Dynamic Evidence from Colombia, Mexico and Morocco. Quarterly Journal of Economics, 113(3): 903-947.
Cleveland, W. S., 1979. Robust Locally Weighted Regression and Smoothing Scatterplots. Journal of the American Statistical Association 74, 829-836.
Clougherty, Joseph A. and Michal Grajek, 2008. The Impact of ISO 9000 Diffusion on Trade and FDI: A New Institutional Analysis. CEPR Discussion Paper 6026 (January).
Corbett, Charles J., 2005. Global Diffusion of ISO 9000 Certification through Supply Chains. UCLA Anderson School of Management, manuscript.
Das, S., Roberts, M. and J. R. Tybout, 2007. Market Entry Costs, Producer Heterogeneity and Export Dynamics. Econometrica, 75 (3): 837-873.
Demiroglu, Ufuk, 2008. The Role of Exports in Growth Miracles. Congressional Budget Office, mimeo.
Erel, Erdal and Jay B. Ghosh, 1997. ISO 9000 implementation in the Turkish industry. International Journal of Operations & Production Management, 17 (12): 1233-1246.
Fajnzylber, Pablo and Ana M. Fernandes, 2006. International Economic Activities and Skilled Labor Demand: Evidence from Brazil and China. Working paper, The World Bank.
Fan, J. Q., 1992. Design-Adaptive Nonparametric Regression. Journal of the American Statistical Association 87, 998-1004.
Fan, J. Q., 1993. Local Linear-Regression Smoothers and their Minimax Efficiencies. Annals of Statistics 21, 196-216.
Feenstra, Robert C., 1988. Quality Change Under Trade Restraints in Japanese Autos. Quarterly Journal of Economics, 103:131-146.
Foster, Lucia; Haltiwanger, John and Chad Syverson, 2007. Reallocation, Firm Turnover and Efficiency: Selection on Productivity or Profitability? American Economic Review, 98 (1): 394-425.
Gosen, Jerry, Babbar, Sunil and Sammer Prasad, 2005. Quality and developing countries: the role of international and organizational factors. International Journal of Quality & Reliability Management, 22(5): 452-464.
Guler, Isin, Guillén, Mauro F. and John M. Macpherson, 2002. Global Competition, Institutions, and the Diffusion of ISO 9000 Quality Certificates. Administrative Science Quarterly, 47: 207-232.
Hallak, Juan Carlos, 2006. Product quality and the direction of trade. Journal of International Economics, 68(1): 238-265.
Hallak, Juan Carlos, 2007. A Product-Quality View of the Linder Hypothesis. NBER Working Paper 12712.
Hallak, Juan Carlos and Peter K. Schott, 2008. Estimating Cross-Country Differences in Product Quality. NBER Working Paper No. W13807.
Heras, Iñaki; Dick, Gavin P. M. and Martí Casadesús, 2002. ISO 9000 Registration's Impact on Sales and Profitability: A Longitudinal Analysis of Performance Before and After Accreditation. International Journal of Quality & Reliability Management, 19 (6): 774-791.
Hudson, John and Philip Jones, 2003. International Trade in "Quality Goods": Signalling Problems For Developing Countries. Journal of International Development, 15: 999-1013.
Hummels, David and Alexandre Skiba, 2004. Shipping the Good Apples Out: An Empirical Confirmation of the Alchian-Allen Conjecture. Journal of Political Economy, 112: 1384-1402.
Iacovone, Leonardo and Beata S. Javorcik, 2007. Getting Ready: Preparation for Exporting. Working Paper.
International Trade Center UNCTAD/WTO, 2005. Innovations in Export Strategy: A strategic approach to the quality assurance challenge. Geneva: ITC.
International Trade Center UNCTAD/WTO, 2001. Executive Forum 2001: Is your trade supporting network working?. Geneva: ITC.
International Trade Center UNCTAD/WTO, 1999. Executive Forum 1999: Redefining trade promotion. Geneva: ITC.
Johnson, Robert C., 2007. Trade and Prices with Heterogeneous Firms. Mimeo, University of California, Berkeley.
Krueger, Anne O., 1998. Why Trade Liberalisation is Good for Growth. The Economic Journal, 108: 1513-1522.
Kugler, Maurice and Eric A. Verhoogen, 2008. Product Quality at the Plant Level: Plant Size, Exports, Output Prices and Input Prices in Colombia. Discussion Paper No. 0708-12, Columbia University.
Lederman, Daniel, Olarreaga, Marcelo and Lucy Payton, 2007. Export Promotion Agencies: What Works and What Doesn't. World Bank Policy Research Working Paper 4044.
Liu, L., 1991. Entry-exit and productivity change: An empirical analysis of efficiency frontiers. Ph.D. dissertation (University of Michigan, Ann Arbor, MI).
Maskus, Keith E., Otsuki, Tsunehiro and John S. Wilson, 2005. The Cost of Compliance with Product Standards for Firms in Developing Countries: An Econometric Study. World Bank Policy Research Working Paper 3590.
Melitz, M. J., 2003. "The impact of trade on intra-industry reallocations and aggregate industry productivity," Econometrica, 71(6), 1695-1725.
Mersha, Tigineh, 1997. TQM implementation in LDCs: driving and restraining forces. International Journal of Operations & Production Management, 17(2): 164-183.
Nguyen, Dan, 2008. Learning Demands and Trade Failures. Purdue University, mimeo.
Oviatt, B. M. and P.P. Mc Dougall, 1994. Toward a theory of international new ventures. Journal of International Business Studies , 25 (1): 45-64.
Patnaik, Ila and Deepa Vasudevan. Trade misinvoicing and capital flight from India. Journal of International Economic Studies, 14:99--108, March 2000
Rauch, James E., 1999. Networks Versus Markets in International Trade. Journal of International Economics, 48(1): 7-35.
Rauch, James E., 2007. Development Through Synergistic Reform. NBER Working Paper 13170.
Rialp, Alex; Rialp, Josep and Gary A. Knight, 2005. The phenomenon of early internationalizing firms: what do we know after a decade (1993-20003) of scientific inquiry? International Business Review, 14: 147-166.
Roberts, M. and Tybout, J. (Ed.), 1996. Industrial Evolution in Developing Countries: Micro Patterns of Turnover, Productivity and Market Structure. NY: Oxford University Press.
Ruhl, Kim, 2008. The International Elasticity Puzzle. University of Texas at Austin, mimeo.
Sivadasan, Jagadeesh. 2007. Productivity Consequences of Product Market Liberalization: Micro-evidence from Indian Manufacturing Sector Reforms. Working Paper. Ann Arbor, MI: University of Michigan.
Sutton, John, 1991. Sunk Costs and Market Structure.. London: MIT Press.
Sutton, John, 2007. Quality, Trade and the Moving Window: The Globalisation Process. The Economic Journal, 117: F469-F498.
Syverson, C., 2004. Product substitutability and productivity dispersion. Review of Economics and Statistics 86, 534-550.
Terlak, Ann and Andrew A. King, 2006. The effect of certification with the ISO 9000 Quality Management Standard: A signaling approach. Journal of Economic Behavior and Organization, 60: 579-602.
Verhoogen, Eric A., 2008. Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector. Quarterly Journal of Economics, forthcoming.
Weston, F. C. Jr., 1995. What do managers really think of the ISO 9000 registration process?. Quality Progress, 28 (10): 67-73.
Withers, B. E. and M. Ebrahimpour, 2001. Impacts of ISO 9000 registration on European Firms: A Case Analysis. Integrated Manufacturing Systems, 12 (2): 139-151.
World Bank, 1987. World Development Report 1987: Barriers to Adjustment and Growth in the World Economy. Industrialization and Foreign Trade. New York: Oxford University Press.
World Bank, 1991. World Development Report 1991: The Challenge of Development. New York: Oxford University Press.
World Bank, 1993. The East Asian Miracle. New York: Oxford University Press.
World Bank, 1999. World Development Report 1998/1999: Knowledge for Development. New York: Oxford University Press.
World Bank, 2000. World Development Report 1999/2000: Entering the 21st Century. New York: Oxford University Press.
World Trade Organization, 2005. World Trade Report 2005: Exploring the Links Between Trade, Standards, and the WTO.
Yeaple, Stephen, 2005. A simple model of firm heterogeneity, international trade and wages. Journal of International Economics, 65(1): 1-20.