Date of Award
Doctor of Philosophy (PhD)
James R. Markusen
Edward J. Balistreri
This dissertation explores the trade patterns of quality-differentiated goods and the welfare effects of rules of origin. Chapter 1 studies a taste for quality channel through which a destination's income per capita causes the variety-quality tradeoff in product exports. I find that, holding market size constant, the elasticity of consumer taste for quality with respect to income per capita determines the differences between rich and poor countries in productivity thresholds, firm market shares, and number of varieties produced. Using firm-level data, empirical support for the theoretical predictions are found. Conditional on entry, low-quality export sales are decreasing in the destination country's GDP per capita, while the relationship between high-quality export sales and income per capita exhibits an inverted-U shape.
Chapter 2 considers the effects of import tariff reductions on the quality of China's exports. I focus on a composition effect arising from firm self-selection into the ordinary and the processing trade regimes following tariff reductions and provide an explanation for the over time declining trend of China's exports quality documented in trade literature. Processing firms produce higher quality goods than ordinary firms due to tariff exemptions on the processing activity. A lower import tariff favors ordinary exporting firms in that cheaper imported inputs induce firms to upgrade product quality and compete for larger market shares.
Chapter 3 investigates the impacts of rules of origin (ROOs) on FTA utilization rates and on country welfare. I develop a general equilibrium model featuring both variable and fixed costs of complying with ROOs. A binding ROO forces exporters to employ more locally produced inputs instead of using the most efficient manufacturing process. Additionally, firms face fixed documentation costs due to the administrative process of obtaining certificates of origin. Whether firms utilize an FTA depends on the tariff benefits net of the extra costs. I show that: (1) as the ROO becomes stricter, the FTA utilization rate decreases and the dominant extensive margin drives down the wage rate in the downstream country; (2) the welfare effects of ROOs are ambiguous depending on the elasticity of substitution between varieties.
Xu, Nan, "Essays on Product Quality, Exports, and Trade Policy" (2017). Economics Graduate Theses & Dissertations. 75.