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Supply and demand for quality in South American exports

Grant number: 17/22466-2
Support type:Scholarships in Brazil - Scientific Initiation
Effective date (Start): April 01, 2018
Effective date (End): January 31, 2019
Field of knowledge:Applied Social Sciences - Economics - International Economy
Principal researcher:Carlos Alberto Cinquetti
Grantee:Geovana Canova de Oliveira
Home Institution: Faculdade de Ciências e Letras (FCL). Universidade Estadual Paulista (UNESP). Campus de Araraquara. Araraquara , SP, Brazil

Abstract

We propose an analysis of bilateral trade in goods quality with two separable theoretical supports: a demand structure (destination countries) based on an oligopolistic model of space competition with adverse selection in which consumers face cost (quality); a supply structure (country of origin) based on a competitive model with quality signage by the exporter. In the empirical analysis, we would take data from Argentina and Brazil (Mercosur), along with Colombia and Peru (Andean Pact), for their global partners, with goods grouped in differentiated and undifferentiated (Rauch list) in the years 1995, 2005 and 2015. The proposed grouping would also allow us to see how trade in quality is affected by trade policies and geography. The analysis of demand structure would focus on the extensive margins (of markets and goods) and quality, examining the extent and pricing of quality exports, as well as the iceberg cost adjusted for quality. The key questions would be: how extensive and quality margin do they correlate? How do social networks affect importers' information about quality, as expressed by the iceberg cost adjusted for quality? The analysis of the supply structure examines the exporter's inter- and intra-commodity specialization, supported by an empirical RUV (relative unit value) model, which overlaps and complements the UV model (unit value) from demand structure. The key question would be: does specialization in higher value goods (quality) correlate with comparative cost advantages? Is, the RUV, intertwined with the exporting experience in each market, as predicted by the model information problem? (AU)

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