APL (Ajiken Power Lunch)

APL (Ajiken Power Lunch) is a lunchtime workshop open to public, including IDE staffs, visiting research fellows, IDEAS students, outside researchers and graduate students. This workshop provides a platform for presentation of any work in progress where we can discuss in either English or Japanese.

Those who would attend a seminar are asked to announce yourself to receptionists on your arrival at the IDE and to obtain APL Organizers' signature on your admission card after the seminar.

February 24, 2017. (Friday) 11：00-12：00

Institute of Developing Economies, Japan External Trade Organization C23 Meeting Room 　

The Quality of Distance: Quality Sorting, Alchian-Allen Effect, and Geography

Either quality sorting or the presence of a specific cost (the so-called Alchian-Allen effect) is considered to be　the main mechanism underlying the positive relationship between　product quality and the distance to market. However,　the reduced-form regressions found in the literature generally fail to　reveal which of these mechanisms is (or even whether both are) the main driving force. In this study, we employ unique Japanese individual goods price data to　identify separately the effects of quality sorting and specific costs.　Our empirical analysis shows that high-cost producers produce high-quality goods, as suggested in Baldwin and Harrigan (2011). Furthermore, the condition that the quality-sorting mechanism accounts for the purported positive link between quality and distance is relaxed with specific costs compared with the case of an iceberg specification. We also identify overestimation of the technology parameter that relates production costs to quality in the absence of specific costs. On this basis, we argue that while the quality-sorting mechanism exists, there is bias in its predictions when not considering specific costs. Moreover, we find that the specific cost components in trade costs are more distance-elastic than any ad-valorem components, a finding qualitatively consistent with the trade cost specification in Hummels and Skiba (2004). Finally, our results are robust with respect to various measures of distance and specification.

Professor Kazutaka Takechi (Hosei University)

Hitoshi SATO

Japanese or English