Abstract
This paper connects the quality of product-level bilateral trade flows with the geographic position of the exporter. Theoretically we show that, in addition to commonly used importer characteristics, quality increases (i) in trade-weighted specific transportation cost to destinations other than the importer and (ii) in trade-weighted preference for quality of destinations other than the importer. These two channels extend the familiar Alchian–Allen and Linder theories to the multilateral setting.The data confirm the theoretical prediction. Non-OECD exporters who face a stronger demand for quality from richer countries charge about 10% more for all destinations. At the same time, countries whose demand is especially distorted by the Alchian–Allen effect charge 58% more. Moreover, geography is more significant to the quality choice of developing countries. Multilateral geographic factors explain 13% of the price variation for non-OECD exporters, 3% for small OECD exporters, and are not significant for OECD exporters overall.
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