The Effects of Product Quality on Net Trade

We determine the effects of product quality on the value of net trade for developed and developing countries. By incorporating the intensity of consumers’ preferences for quality, we can identify different quality impacts on net trade as product quality may affect prices and preferences. Using manufacturing data and a direct measure of quality, we estimate the quality effects for developed and developing countries. We conclude that product quality is positively related to net trade, and developed countries enjoy a higher quality effect. We find the quality effects may differ due to GDP per capita and the number of product varieties.