Thursday, 10 April 2008: 14:45
It has become more and more frequent to infer export ‘quality’ from the unit export values. Examples of such reasoning include studies that divide intra-industry trade into horizontal and vertical components, and policy-related research into international competitiveness. First question I ask in this paper, is how sound is this procedure from the microeconomic perspective? Based on the Industrial Organization consumer choice theory I find assumptions about the demand structure implied (yet hardly ever stated) by this kind of inference and I discuss conditions under which these assumptions can actually be met in the context of international trade. Secondly, I perform an empirical analysis by calculating my own, theory-based quality indicators for about 3000 selected EU markets (as defined by the importing country and the 8-digit CN industry) between 1994-2005 and compare the outcome with the results of previous studies based on UEV as quality indicators.