Agri‐food trade liberalization, export prices, and quality upgrading: Evidence from the meat and chocolate sectors in OECD countries

Abstract

AbstractThis article examines the impact of trade liberalization on export prices and quality. The article is innovative in two respects. First, unlike previous studies, it considers both input and output tariffs simultaneously in a theoretical model. Second, it empirically tests the effects of a combination of specific and ad‐valorem tariffs on quality improvement. The theoretical analysis suggests that when firms face reduced output and input tariffs, they tend to improve their export quality and increase export prices. Using export data from 33 OECD countries, the empirical analysis demonstrates that output tariff reduction increases export quality but decreases prices. However, the effects of input tariff reduction on price and quality depend on product differentiation. The results also indicate that the presence of specific tariffs increase product quality while amplifying the positive effects of the reduction of ad‐valorem tariffs on quality. This implies that to improve export quality, reducing ad‐valorem tariffs is more efficient than a specific tariff. [EconLit Citations: F12, F14, Q17].