ABSTRACT
We estimate micro-level firm-product-destination-year export quality for Indonesia (2008–2012) and China (2000–2013). Our framework relies on the endogenous choice of quality for individual firms and includes the impacts of production efficiency, consumer preferences, input costs, and shipping costs on the optimal level of quality. We present the aggregate export quality distribution over time for the two countries as well as the export quality distribution over time by firm type and industry.
Our findings show that a firm will produce and export a higher quality product to a place that has higher consumer preferences when the relative cost of shipping is higher than the unit production costs. We also show that better quality goods are more likely to be sold to high-income destinations. When we decompose the aggregate weighted-average export quality into the intensive and extensive margins, we find that the intensive margin plays a major role in Indonesia’s exports, while the extensive margin plays a major role in China’s exports.
