Quality and variety of exports from the new EU member states: evidence from very disaggregated data

According to trade theories, the average quantity of exported goods is not the only
parameter of export performance – the variety and quality of exports also play an
important role. The goal of this paper is to evaluate the variety and quality of exports
from the new EU Member States Bulgaria, the Czech Republic, Estonia, Hungary,
Latvia, Lithuania, Poland, Romania, Slovakia and Slovenia (NMS) in 1999–2009.
The analysis is done on the basis of methodology proposed by R. C. Feenstra (7) and
further developed by D. Hummels and P. Klenow (13), and Ch. Broda and
D. E. Weinstein (4). Although unit values play an important role in defining export
quality, the calculations herein take into account also market shares and the level of
monopoly power of firms in a particular market. In addition, this study contributes to
the existing literature by providing a different way of evaluating the variety
assuming that the number of exported brands follows the Poisson distribution. The
calculations show that exports from NMSs in 2009 were of lower quality in
comparison with German exports: relative quality was ranging between 0.30 and
0.55. It was found that all NMSs significantly increased their average number of
brands exported to the EU market; moreover, all NMSs were able to increase the
average quality of their exports during the 10-year reference period. Finally, relative
quality is much more stable than relative prices, providing evidence that the measure
of relative quality developed herein is better than the traditional proxy, i.e. relative
export prices, as it does not include relative costs of production but reflects
structural factors.