6 (forthcoming). This data set is analogous to the UN–NBER data set, but provides longer time coverage. The data set contains 45.3 million observations on bilateral trade values and quantities at the SITC 4-digit (Revision 1) level. Any given importer-exporter-product-year combination will have more than one observation for the same 4-digit category whenever import quantities are reported using more than one set of units. In this case, the multiple sets of import quantities are considered distinct “SITC 4-digit-plus” products, so that comparable unit values may be obtained within each product category. The total number of “SITC 4-digit-plus” products is 835, based on 625 underlying SITC 4-digit categories.<sup>22</sup> Information on preferential trade agreements is drawn from the World Trade Organization’s Regional Trade Agreements database, and other gravity variables are drawn from CEPII (Head and Mayer, 2013). Data on income per capita are drawn from the Penn World Tables version 9.0 (Feenstra et al., 2015).

Reassuringly, the estimation results mirror closely those of Hallak (2006). All coefficients have the expected sign, and are statistically significant in the majority of specifications (Table 1). Moreover, the coefficients are closely comparable to those in Hallak (2006), except for those on the price-importer income interaction, which is as expected because our trade price vector is defined differently.<sup>23</sup>

# **3. EXPORT QUALITY ACROSS PRODUCTS, COUNTRIES, AND TIME**

This section illustrates some stylized facts about export quality and provides a flavor of the richness of the data set. First, we compare our quality estimates with standard unit value measures. Second, we focus on a couple of specific sectors to highlight how informative it is to examine jointly developments in quality, unit values, and market share. Third, we show how a country’s position on “quality ladders” may indicate large quality upgrading potential or, conversely, an increased need for horizontal diversification. Fourth, we discuss how our measure of quality varies along the development path, again establishing a comparison with unit values. Fifth, we analyze changes in product quality over time, highlighting the significant heterogeneity across regions and countries.

# **A.   Comparison of Quality Estimates with Unit Values**

Unit values are much more dispersed than quality. This is the case even after eliminating extreme values (Figure 1). Quality and unit values are correlated, but only at lower quality levels. Once a country’s quality level reaches about 80–85 percent of the world frontier value, quality and unit values are no longer correlated. Thus, quality increases beyond that level do not tend to be associated with price increases, possibly because higher efficiency in production reduces costs. Quality increases are particularly strongly correlated with price increases in agricultural goods.

Quality evolves gradually. Focusing on the early (1962–80), middle (1980–95), and most recent (1995– 2014) periods, changes in quality within each period of more than 20 percent relative to other countries are rare (Figure 2). Changes in quality also tend to be much smaller than changes in unit values. Moreover, for all sectors as well as manufacturing alone, increases in quality are in many cases not accompanied by increases in unit values. Some countries have seen considerable increases in quality accompanied by stable unit values: here, quality increases offset price declines on constant-quality products, for instance in the computer and electronics sectors.

22 SITC 4-digit-plus products were dropped if they met either of two criteria for smallness. First, the product comprised less than 1 percent of total observations or trade value of the corresponding SITC 4-digit product. Second, the product had less than 1,000 observations, and comprised less than 25 percent of total observations or trade value of the corresponding SITC 4-digit product. In addition, outliers were eliminated by excluding any observation with: (i) a quantity of 1; or (ii) a total trade value of less than $7,500 at 1989 prices; or (iii) a unit value above the 95<sup>th</sup> or below the 5<sup>th</sup> percentile in 1989 prices within any given product.

23 Hallak (2006), using U.S. data only, computes Fisher price indexes for each SITC 2-digit sector starting from 10digit sectors. In this paper, we use directly unit values of SITC 4-digit-plus products.

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