Trade Reform and Quality Upgrading in South Africa: A Product Level Analysis

The link between trade liberalization and product quality is both empirical and theoretically ambiguous. This paper tries to investigate this relationship for the case of South Africa manufacturing sector exports using highly disaggregated product level data. The study employs panel data techniques exploiting variation at both product level and product-country level using HS8 and HS6 digit product level data. Emerging from the results is a shift over time period of the impact of tariff liberalization on product quality. Pre 2000, before the preferential application of tariff on various regions, tariff liberalization is associated with decline in quality upgrading when exploiting variation at HS8 digit product level. However after 2001, there is a shift in which case tariff liberalisation is associated with increase in quality of exports using variation at product-country level using HS6 digit level data. The results therefore suggest that in early stages of development tariff liberalization hurts quality upgraders. However as a country develops tariff liberalization is associated with increase in quality of exports.