Specialization across goods and export quality

Abstract

This paper explores the link between international specialization across goods and within goods along the quality dimension. The analysis is performed in a multi-country model with an integer number of efficiency heterogeneous firms producing each good and under reasonably general assumptions on the shape of firm efficiency distributions and market structure. In equilibrium, each country exports a range of qualities for each good that overlaps with the ranges of other countries following patterns that relate to differences in wages, trade frictions and absolute advantage. If firm efficiency is quality biased (i.e., the relative productivity of more efficient firms is higher when producing higher quality) then, conditional on wages, the average quality of the exports within an industry increases with the country’s international specialization in that industry.