Quality Upgrading and the Stages of Diversification

Abstract

This paper explores the contribution of product quality upgrading in the process of export diversification. To do this, the paper builds a multisector model following Eaton and Kortum (2002) in which product quality is incorporated as a key feature. The model is then calibrated to generate predictions about the degree of export diversification in a number of East Asian countries. It is shown that quality upgrading is a key factor to understand the changes in the degree of export diversification in the majority of countries in our sample.

Structural Transformation and Quality Ladders: Solving the 'Theil's Cube'

“…That is, the main driving force of structural transformation, according to this approach, is the change in the product mix. Nevertheless, recently the empirical study byPapageorgiou et al (2017) emphasized that quality upgrading played the key role in export diversification for most East Asian countries. So, both channels are obviously important, but, again, what is the proportion?…”