DP10931 Quality and the Great Trade Collapse

Author(s): Natalie Chen, Luciana Juvenal
Publication Date: November 2015
Keyword(s): Exports, Heterogeneity, Multi-product firms, Quality, Trade collapse, Unit values, Wine
JEL(s): F10, F14, F41
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=10931

We explore whether the global financial crisis has had heterogeneous effects on traded goods differentiated by quality. Combining a dataset of Argentinean firm-level destination-specific wine exports with quality ratings, we show that higher quality exports grew faster before the crisis, but this trend reversed during the recession. Quantitatively, the effect is large: up to nine percentage points difference in trade performance can be explained by the quality composition of exports. This flight from quality was triggered by a fall in aggregate demand, was more acute when households could substitute imports by domestic alternatives, and was stronger for smaller firms' exports.