Speaker: Benjamin R. Mandel, Federal Reserve Board of Governors
Abstract: This paper investigates the propensity of exporters in certain primary commodity sectors to innovate, and attempts to measure the associated gains. First, the high degree of differentiation in metal products is documented, which gives rise to the potential for vertical upgrading for a substantial portion of Latin American export sales. Estimation of a demand system for U.S. imports shows that relatively high-priced new varieties tend to gain market share, which suggests a correspondingly large increase in the relative quality of those varieties. Breaking down the types of metal products by order of their value-added in production reveals a pattern of specialization away from low-value ores and toward high-value intermediate and finished products. Upgrading varieties and shifting specialization to downstream outputs account for the vast majority of Latin American market share growth in metals over the past 30 years.