Moving up the Quality Ladder?

Moving up the Quality Ladder? EU-China Dynamics in Clothing

We apply a simple method to study the relative quality of Chinese versus European products exported in the clothing sector after the end of the Multi-Fiber Arrangement. Based on the model of Foster et al., (2008), we interpret the change in relative export prices and quantities sold in narrowly defined product categories as an indicator of quality shifts. Using UN Comtrade data, we find that European varieties exported to the US typically sell for a higher price than identical Chinese varieties exported to the US, but this price gap is narrowing. Despite rising prices, Chinese varieties are gaining market share. This opposite movement of relative prices and quantities sold in the same destination market are a strong indication of China`s moving up the quality ladder in its clothing exports relative to the EU. While European core products in clothing are stable over time, Chinese exports show product dynamics with exit and entry of new core products every year.