CCER讨论稿:Judicial Quality, Input Customization, and Trade Margins: The Role of Product Quality

发布日期:2020-08-06 06:34    来源:

E2020009                                                        2020-08-06
Xiaomin Cui
Chinese Academy of Social Sciences
Miaojie Yu
Peking University
Rui Zhang
Aarhus University

Better contracting environment and judicial quality in a country not only constitute a comparative advantage in industries intensively using customized input, but also induce quality upgrading of domestic varieties and tougher domestic competition, affecting the quality compositions of trade in those industries. To characterize these effects, we develop a Ricardian model that accounts for relationship-specificity ofcustomizedinputandproductqualitychoice. Usinglegaloriginastheinstrument for judicial quality, we empirically confirm the model’s implications of country-level judicial quality for trade pattern, price, and quality across industries and products. We then propose new welfare formulas highlighting the domestic competition and quality composition effects and show that domestic shocks are critical in driving relative welfare changes across countries.

Keywords: Judicial quality, Contracts, Customized input, Quality, Trade margins