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Trade costs, quality and the skill premium

Author

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  • Eddy Bekkers
  • Joseph Francois
  • Miriam Manchin
Abstract
We develop a monopolistic competition model with non‐homothetic factor input bundles where increasing quality requires increasing use of skilled workers. As a result more skill abundant countries export higher quality, higher priced goods. Using a multi‐country dataset, we test and confirm the findings in Schott of a positive effect of skill abundance on unit values identified with US data. We extend the core model with per unit trade costs leading to the Washington apples effect that goods shipped over larger distance are of higher quality. The combination of high‐quality goods being relatively skill intensive with the Washington apples effect implies that countries at a larger distance from their trading partners display a higher skill premium. Simulating our model, we find that a doubling of distance of a country relative to all its trading partners raises the skill premium in a country by about 1.6%. Les coûts du commerce, qualité, et la prime au travail qualifié. Les auteurs développent un modèle de concurrence monopolistique avec des ensembles d'intrants non homothétiques où une qualité accrue réclame l'utilisation accrue de travailleurs qualifiés. En conséquence, les pays où relativement abondent les travailleurs qualifiés exportent des produits de plus haute qualité et à prix plus élevés. À l’aide de données pour plusieurs pays, on met au test et on confirme les résultats de Schott – pour des données américaines – à l'effet que l'abondance de qualifications dans un pays a un effet positif sur la valeur ajoutée. On applique son modèle à des données pour plusieurs pays. On modifie le cœur du modèle en utilisant les coûts du commerce par unité de commerce ce qui débouche sur l'effet des pommes de Washington à savoir que les produits transportés sur de plus grandes distances sont de plus haute qualité. La combinaison de ces deux forces (le fait que les produits de plus haute qualité réclament plus de travail qualifié, et l'effet des pommes de Washington) suggère que les pays à plus grande distance de leurs partenaires commerciaux jouissent d'une prime au travail qualifié. Les simulations du modèle révèlent qu'un doublement de la distance entre un pays par rapport à tous ses partenaires commerciaux voudrait dire un accroissement de la prime au travail qualifié de ce pays de l'ordre de 1.6%

Suggested Citation

  • Eddy Bekkers & Joseph Francois & Miriam Manchin, 2016. "Trade costs, quality and the skill premium," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(3), pages 1153-1178, August.
    • Handle: RePEc:wly:canjec:v:49:y:2016:i:3:p:1153-1178
    DOI: 10.1111/caje.12228
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    References listed on IDEAS

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    Cited by:

    1. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
    2. Kölling, Arnd & Mertens, Antje, 2020. "Exporting behavior and the demand for skills in German establishments," Working Papers 97, Berlin School of Economics and Law, Institute of Management Berlin (IMB).
    3. Carlo Perroni & Davide Suverato, 2023. "Skills scarcity and export intensity," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 56(2), pages 719-757, May.
    4. Haithem Ben Hassine & Claude Mathieu, 2021. "Price and quality competitiveness across OECD countries: An approach to quality by R&D expenditure," The World Economy, Wiley Blackwell, vol. 44(8), pages 2344-2382, August.
    5. Zhang, Dongyang & Wang, Cao & Miao, Shan & Deng, Lei, 2024. "The impact of firm's ESG performance on the skill premium: Evidence from China's green finance reform pilot zone," International Review of Financial Analysis, Elsevier, vol. 93(C).
    6. Feicheng Wang & Chris Milner & Juliane Scheffel, 2022. "Export destination and the skill premium: Evidence from Chinese manufacturing industries," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 55(2), pages 1057-1094, May.
    7. Arnd Kölling & Antje Mertens, 2022. "Export activities and the demand for skills in German businesses," Empirica, Springer;Austrian Institute for Economic Research;Austrian Economic Association, vol. 49(1), pages 189-223, February.

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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