Export revenue and quality: Firm‐level evidence from developing countries

• Author: Asier Minondo
• Date: 01 May 2020
• Published date: 01 May 2020
• DOI: http://doi.org/10.1111/rode.12653

Rev Dev Econ. 2020;24:471–484. wileyonlinelibrary.com/journal/rode

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471

© 2020 John Wiley & Sons Ltd

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INTRODUCTION

How can firms of developing countries maximize their revenue in foreign markets? The literature

identifies two main strategies. Melitz (2003) argues that more productive firms achieve larger revenue

because they set lower prices. However, Baldwin and Harrigan (2011) contend that more productive

firms achieve larger revenue because they specialize in high-quality goods. In the first model, firms

compete on prices, whereas in the second they compete on quality.1

Since both models provide sensi-

ble arguments, it becomes an empirical question whether developing countries’ exporters following a

cost-based strategy generate larger export revenue than those following a quality-based strategy.

I use firm-level export data from eight low-income and middle-income countries: Albania,

Bulgaria, Burkina Faso, Jordan, Malawi, Peru, Senegal, and Yemen, to test the correlation between

export price and revenue. For all countries, I find a robust and strong positive correlation between

export price and export revenue. This positive association arises when analyzing the differences in

Received: 26 March 2018

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Revised: 6 January 2020

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Accepted: 14 January 2020

DOI: 10.1111/rode.12653

REGULAR ARTICLE

Export revenue and quality: Firm-level evidence

from developing countries

AsierMinondo

Deusto Business School, University of

Deusto, Donostia—San Sebastian, Spain

Correspondence

Asier Minondo, Deusto Business School,

University of Deusto, 20012 Donostia—

San Sebastian, Spain.

Email: aminondo@deusto.es

Funding information

Spanish Ministry of Economics and

Competitiveness, Grant/Award Number:

ECO2016-79650-P; Basque Government

Department of Education, Language

policy and Culture, Grant/Award Number:

IT885-16; Spanish Ministry of Science,

Innovation, and Universities, Grant/Award

Number: RTI2018-100899-B-I00, co-

financed with FEDER

Abstract

I combine firm-level export data from eight low-income and

middle-income countries to test the relation between export

price and export revenue. Across-firm estimations show a

strong positive association between export price and export

revenue. Within-firm estimations show that firms generate

larger export revenue from their high-price products. The

positive correlation between export price and export reve-

nue is strong for manufactures, weak for primary commodi-

ties, and nonexistent for extractables. Results are robust to

using an alternative quality measure and controlling for ex-

porters’ market power.

KEYWORDS

developing countries, export price, export revenue, exporters, quality

JEL CLASSIFICATION

D22; F10; O19; O57