Price, quality and trade costs in the food sector

Recent developments in international trade theory have placed considerable and growing emphasis on the quality of the exported products, showing that it affects both the direction of trade and the countries' export performances. However, as quality is unobservable, a measurement problem clearly emerges. In this paper we review and apply some of the most recent methods developed in the international trade literature to estimate quality of traded products. We focus on the food sector, where the growing attention on quality and safety issues is leading to an increase in the demand for high quality products. In the first part of our empirical analysis, we investigate the properties of the estimated qualities, drawing some interesting results. In particular we find that, in contrast with what is often assumed in the literature, quality and prices are imperfectly correlated. The second empirical section is dedicated to the study of the relationship between price vs. quality and trade costs. What emerges is that, interestingly, the price and the quality of food exports are influenced differently by ad valorem and specific trade costs. Moreover, the magnitude of this relationship changes according to the level of product differentiation.