Weight-based quality specialization

Abstract

This paper uncovers a new type of quality specialization that occurs along the physical weight margin. To this end, I document that (i) there is great heterogeneity in the unit weight of traded goods even within narrowly-defined product categories; (ii) heavier varieties of the same product are more costly to produce; (iii) heavier varieties exhibit (on average) a higher product appeal or quality; and (iv) the cost of transportation increases more rapidly with unit weight than the cost of production. These observations indicate that suppliers face a basic quality/cost trade-off when choosing their output unit weight. As a result of this trade off, high-wage economies specialize in heavier varieties of a given good, while geographically distant economies specialize in lighter varieties (i.e., weight-based quality specialization). Micro-level trade data support these predictions and suggest that weight-based quality specialization can explain a significant portion of the cross-national variation in export prices and export quality. Moreover, accounting for the heterogeneity in export unit weights yields support for the iceberg trade cost assumption, which has proven to be elusive in the past.