Discussion Paper

Does Import Competition Improve the Quality of Domestic Goods?

Abstract: Firms must produce high-quality goods to be competitive in international markets, but how do they transition from producing low- to high-quality goods? In a new study (?Import Competition and Quality Upgrading,? forthcoming in the Review of Economics and Statistics), we focus on how tougher import competition affects firms? decisions to upgrade the quality of their goods. Our results, which we summarize in this post, show that stiffer import competition affects quality-upgrading decisions. For firms already producing very high-quality goods, lower tariffs induce them to produce goods of even higher quality. However, for firms producing very low-quality goods, lower tariffs actually discourage quality upgrading. Ours is the first study to show a significant relationship between import competition and quality.

Keywords: quality upgrading; Import competition;

JEL Classification: F00;

Bibliographic Information

Provider: Federal Reserve Bank of New York

Part of Series: Liberty Street Economics

Publication Date: 2013-04-08

Number: 20130408