Big Data

Geography And Comparative Advantage In Quality

Date Added: Jan 2011
Format: PDF

This paper investigates how a country's geographic position relative to other countries affects the quality of its exports. The two driving forces are the supply-side response to the specific transportation cost (generalized Alchian-Allen effect) and the stronger preference for quality in richer countries. Producers who may be unable to adjust quality for every market will choose a common quality level that is a function of their destinations' trade-weighted average preference for quality and specific transportation cost. The data confirm the theoretical prediction.