Abstract: We show that the efficiency of countries’ distribution systems help determine the quality of goods produced and traded, i.e., is a source of comparative advantage in quality. Using the structure of our model and shipment-level imports data from Chile, we estimate the efficiency of trade distribution systems for a sample of 86 countries. We find that the implied efficiency of distribution systems vary widely across countries, with the 90th percentile value of per- shipment costs being almost 150 percent larger than the 10th percentile value. After calibrating the parameters of the model, we show that differences in the efficiency of distribution systems can generate more than half of the observed (in the data) elasticity of export prices with respect to per capita income. Moreover, the welfare effects of reducing inefficiencies in distribution systems via quality upgrading are larger than the effects via trade volumes.
Keywords: Distribution cost, per-shipment cost, quality, comparative advantage
JEL Classification: F10, F12