BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 23/2012:
Is China climbing up the quality ladder?
Gabor Pula ()
and Daniel Daniel Santabarbara
Abstract: There is an ongoing debate in the literature about the
quality content of Chinese exports and to what extent China imposes a
threat to the market positions of advanced economies. While China’s export
structure is very similar to that of the advanced world, its export unit
values are well below the level of developed economies. Building on the
assumption that unit values reflect quality the prevailing view of the
literature is that China exports low quality varieties of the same products
than its advanced competitors. This paper challenges this view by relaxing
the assumption that unit values reflect quality. We derive the quality of
Chinese exports to the European Union by estimating disaggregated demand
functions from a discrete choice model. The paper has three major findings.
First, China’s share on the European Union market is larger than would be
justified only by its low average prices, implying that the quality of
Chinese exports is high compared to many competitors. Second, China has
gained quality relative to other competitors since 1995, indicating that
China is climbing up the quality ladder. Finally, our analysis on the
supply side determinants reveals that the relatively high quality of
Chinese exports is related to processing trade and the increasing role of
global production networks in China.
Keywords: Chinese exports; vertical product differentiation; quality ladder; global production networks; discrete choice model; COMEXT database; (follow links to similar papers)
JEL-Codes: F10; F12; F14; F15; F23; (follow links to similar papers)
29 pages, October 2, 2012
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