@article{wto:/content/papers/25189808/168, author = "World Trade Organization", title = "The Determinants of Quality Specialization", journal= "WTO", year = "2014", volume = "", number = "", pages = "", doi = "https://doi.org/10.30875/03aec480-en", url = "https://www.wto-ilibrary.org/content/papers/25189808/168", publisher = "WTO", issn = "", type = "", abstract = "A growing literature suggests that high-income countries export high-quality goods. Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy. Fajgelbaum, Grossman, and Helpman (JPE -2011-) formalize the Linder (1961) conjecture that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products. The factor-proportions model also predicts that skill-abundant, high-income locations export skill-intensive, high-quality products (Schott, QJE 2004). Prior empirical evidence does not separate these explanations. I develop a model that nests both hypotheses and employ microdata on US manufacturing plants’ shipments and factor inputs to quantify the two mechanisms’ roles in quality specialization across US cities. Home-market demand explains at least as much of the relationship between income and quality as differences in factor usage.", }