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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%.

Suggested Citation

  • Eddy Bekkers & Joseph Francois & Miriam Manchin, 2016. "Trade costs, quality and the skill premium," Canadian Journal of Economics, Canadian Economics Association, vol. 49(3), pages 1153-1178, August.
    • Handle: RePEc:cje:issued:v:49:y:2016:i:3:p:1153-1178
    DOI: 10.1111/caje.12228
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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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