{"id":35372,"date":"2026-05-19T11:09:36","date_gmt":"2026-05-19T15:09:36","guid":{"rendered":"https:\/\/poole.ncsu.edu\/thought-leadership\/article\/economists-solve-a-mystery-involving-international-trade-and-competition-from-china\/"},"modified":"2026-08-19T06:19:30","modified_gmt":"2026-08-19T10:19:30","slug":"economists-solve-a-mystery-involving-international-trade-and-competition-from-china","status":"publish","type":"post","link":"https:\/\/poole.ncsu.edu\/thought-leadership\/article\/economists-solve-a-mystery-involving-international-trade-and-competition-from-china\/","title":{"rendered":"Economists Solve a Mystery Involving International Trade and Competition From China"},"content":{"rendered":"\n\n\n\n\n

For Immediate Release<\/h2>\n
Hamid Firooz<\/span>hfirooz@ncsu.edu<\/a><\/div>\n\n\n\n
Matt Shipman<\/span>matt_shipman@ncsu.edu<\/a><\/div>\n<\/section>\n\n\n\n

Economists have identified \u2013 and resolved \u2013 a seeming paradox regarding how competition from China affects the price and volume of products that are exported from other countries into the United States. The findings shed new light on the complex dynamics of international trade and how the effects of trade competition vary drastically for poor nations compared to their wealthy counterparts.<\/p>\n\n\n\n

\u201cThe price of products facing heightened market competition from China decrease more than products that are not facing as much competition from China \u2013 that\u2019s not surprising,\u201d says Hamid Firooz, co-lead author of a paper on the work and an assistant professor of economics in North Carolina State University\u2019s Poole College of Management. \u201cBut our study identifies two interesting effects regarding the export of those high-competition products from other countries.<\/p>\n\n\n\n

\u201cFirst, the price of those exports goes down. Second, the quantity of those products being exported into the U.S. actually goes up. And both of those effects \u2013 lower prices and increased exports \u2013 are more pronounced for poorer nations than for wealthy ones.<\/p>\n\n\n\n

\u201cThis creates a mystery,\u201d Firooz says. \u201cIf prices in the U.S. market are going down because China is competing in the marketplace, and those prices are going down more for exports from poorer countries, the conventional wisdom would be that the products being made in poorer countries are similar to the products being made in China \u2013 whereas richer countries are making products that are distinct from the Chinese products. But if poorer countries are in more direct competition with China compared to wealthy countries, why would exports from poor countries increase more relative to rich ones? It seems like a paradox, and we wanted to find out what was going on.\u201d<\/p>\n\n\n\n

To explore the issue, the researchers drew on international trade data from 1992 through 2005, detailing the unit price and quantity of exports into the U.S. from 197 countries across thousands of different product categories.<\/p>\n\n\n\n

The researchers then used an empirical model to precisely document what they were seeing in terms of export prices and quantities, and developed a theoretical model in an attempt to understand what was driving that behavior.<\/p>\n\n\n\n

\u201cThe theoretical model showed that \u2018quality upgrading\u2019 was the primary driver for this phenomenon involving exports prices and quantities,\u201d says Firooz. \u201cThe main reason wealthy countries reduced prices and increased exports less than poor countries was because manufacturers in rich countries were better able to increase the quality of their goods compared to manufacturers in poor countries. In other words, businesses in rich countries responded to increased competition from China by increasing the quality of their products.<\/p>\n\n\n\n

\u201cBy the same token, manufacturers in poorer countries were less likely to have the resources necessary to upgrade product quality,\u201d says Firooz. \u201cThat means they were more likely to respond to increased competition by cutting prices. And decreased prices led to greater consumer demand, which explains the increased quantity of exports from poorer countries.\u201d<\/p>\n\n\n\n

The researchers then tested the quality upgrading mechanism identified by the theoretical model to see if it matched what they saw in the export data.<\/p>\n\n\n\n

\u201cWe found that the results of the theoretical model fit the data,\u201d says Firooz. \u201cIt explains what was going on.<\/p>\n\n\n\n

\u201cThese findings are interesting, because we both identified and solved an international economic mystery. But the findings also highlight the role that quality upgrading can play in international markets. This underscores the importance of access to capital and equipment and raises questions about everything from labor productivity to wage inequality. These are promising areas for future research.\u201d<\/p>\n\n\n\n

The paper, \u201cCross-Country Heterogeneous Response to Competition: Theory and Evidence from Trade Data<\/a>,\u201d is published in the Review of Economics and Statistics<\/em>. Co-lead author of the paper is Hamed Atrianfar at JPMorganChase.<\/p>\n\n\n\n

-shipman-<\/p>\n\n\n\n

Note to Editors:<\/strong> The study abstract follows.<\/p>\n\n\n\n

\u201cCross-Country Heterogeneous Response to Competition: Theory and Evidence from Trade Data\u201d<\/strong><\/p>\n\n\n\n

Authors<\/em>: Hamed Atrianfar, JPMorganChase; Hamid Firooz, North Carolina State University<\/p>\n\n\n\n

Published<\/em>: May 14, Review of Economics and Statistics<\/em><\/p>\n\n\n\n

DOI<\/em>: 10.1162\/REST.a.1772<\/p>\n\n\n\n

Abstract:<\/strong> We document that in response to intensified competition from China in the U.S., poor countries reduce their export prices relative to rich countries, consistent with conventional wisdom. Interestingly, however, the opposite is true for export quantities. To reconcile these facts, we develop and estimate a general equilibrium model of trade featuring (i) cross-country heterogeneity in the ability to produce high-quality goods and (ii) a two-dimensional Bertrand competition on price and quality. Our model explains the empirical facts by showing that rich countries have a comparative advantage in quality upgrading, whereas a nested model without quality cannot do so.<\/p>\n

This post was originally published<\/a> in NC State News.<\/em><\/p>","protected":false,"raw":"\n\n\n\n\n

For Immediate Release<\/h2>\n
Hamid Firooz<\/span>hfirooz@ncsu.edu<\/a><\/div>\n\n\n\n
Matt Shipman<\/span>matt_shipman@ncsu.edu<\/a><\/div>\n<\/section>\n\n\n\n

Economists have identified \u2013 and resolved \u2013 a seeming paradox regarding how competition from China affects the price and volume of products that are exported from other countries into the United States. The findings shed new light on the complex dynamics of international trade and how the effects of trade competition vary drastically for poor nations compared to their wealthy counterparts.<\/p>\n\n\n\n

\u201cThe price of products facing heightened market competition from China decrease more than products that are not facing as much competition from China \u2013 that\u2019s not surprising,\u201d says Hamid Firooz, co-lead author of a paper on the work and an assistant professor of economics in North Carolina State University\u2019s Poole College of Management. \u201cBut our study identifies two interesting effects regarding the export of those high-competition products from other countries.<\/p>\n\n\n\n

\u201cFirst, the price of those exports goes down. Second, the quantity of those products being exported into the U.S. actually goes up. And both of those effects \u2013 lower prices and increased exports \u2013 are more pronounced for poorer nations than for wealthy ones.<\/p>\n\n\n\n

\u201cThis creates a mystery,\u201d Firooz says. \u201cIf prices in the U.S. market are going down because China is competing in the marketplace, and those prices are going down more for exports from poorer countries, the conventional wisdom would be that the products being made in poorer countries are similar to the products being made in China \u2013 whereas richer countries are making products that are distinct from the Chinese products. But if poorer countries are in more direct competition with China compared to wealthy countries, why would exports from poor countries increase more relative to rich ones? It seems like a paradox, and we wanted to find out what was going on.\u201d<\/p>\n\n\n\n

To explore the issue, the researchers drew on international trade data from 1992 through 2005, detailing the unit price and quantity of exports into the U.S. from 197 countries across thousands of different product categories.<\/p>\n\n\n\n

The researchers then used an empirical model to precisely document what they were seeing in terms of export prices and quantities, and developed a theoretical model in an attempt to understand what was driving that behavior.<\/p>\n\n\n\n

\u201cThe theoretical model showed that \u2018quality upgrading\u2019 was the primary driver for this phenomenon involving exports prices and quantities,\u201d says Firooz. \u201cThe main reason wealthy countries reduced prices and increased exports less than poor countries was because manufacturers in rich countries were better able to increase the quality of their goods compared to manufacturers in poor countries. In other words, businesses in rich countries responded to increased competition from China by increasing the quality of their products.<\/p>\n\n\n\n

\u201cBy the same token, manufacturers in poorer countries were less likely to have the resources necessary to upgrade product quality,\u201d says Firooz. \u201cThat means they were more likely to respond to increased competition by cutting prices. And decreased prices led to greater consumer demand, which explains the increased quantity of exports from poorer countries.\u201d<\/p>\n\n\n\n

The researchers then tested the quality upgrading mechanism identified by the theoretical model to see if it matched what they saw in the export data.<\/p>\n\n\n\n

\u201cWe found that the results of the theoretical model fit the data,\u201d says Firooz. \u201cIt explains what was going on.<\/p>\n\n\n\n

\u201cThese findings are interesting, because we both identified and solved an international economic mystery. But the findings also highlight the role that quality upgrading can play in international markets. This underscores the importance of access to capital and equipment and raises questions about everything from labor productivity to wage inequality. These are promising areas for future research.\u201d<\/p>\n\n\n\n

The paper, \u201cCross-Country Heterogeneous Response to Competition: Theory and Evidence from Trade Data<\/a>,\u201d is published in the Review of Economics and Statistics<\/em>. Co-lead author of the paper is Hamed Atrianfar at JPMorganChase.<\/p>\n\n\n\n

-shipman-<\/p>\n\n\n\n

Note to Editors:<\/strong> The study abstract follows.<\/p>\n\n\n\n

\u201cCross-Country Heterogeneous Response to Competition: Theory and Evidence from Trade Data\u201d<\/strong><\/p>\n\n\n\n

Authors<\/em>: Hamed Atrianfar, JPMorganChase; Hamid Firooz, North Carolina State University<\/p>\n\n\n\n

Published<\/em>: May 14, Review of Economics and Statistics<\/em><\/p>\n\n\n\n

DOI<\/em>: 10.1162\/REST.a.1772<\/p>\n\n\n\n

Abstract:<\/strong> We document that in response to intensified competition from China in the U.S., poor countries reduce their export prices relative to rich countries, consistent with conventional wisdom. Interestingly, however, the opposite is true for export quantities. To reconcile these facts, we develop and estimate a general equilibrium model of trade featuring (i) cross-country heterogeneity in the ability to produce high-quality goods and (ii) a two-dimensional Bertrand competition on price and quality. Our model explains the empirical facts by showing that rich countries have a comparative advantage in quality upgrading, whereas a nested model without quality cannot do so.<\/p>\n"},"excerpt":{"rendered":"

Economists found what seemed like an international trade paradox. Then they figured out what was causing it.<\/p>\n","protected":false},"author":732,"featured_media":35373,"comment_status":"closed","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"source":"ncstate_wire","ncst_custom_author":"Matt Shipman","ncst_show_custom_author":true,"ncst_dynamicHeaderBlockName":"","ncst_dynamicHeaderData":"{\"caption\":\"Photo credit: Rinson Chory.\",\"displayCategoryID\":641,\"showAuthor\":true,\"showDate\":true,\"showFeaturedVideo\":false,\"subtitle\":\"Economists found what seemed like an international trade paradox. Then they figured out what was causing it.\"}","ncst_content_audit_freq":"","ncst_content_audit_date":"","ncst_content_audit_display":false,"ncst_backToTopFlag":"","footnotes":""},"categories":[122,641,642],"tags":[166,146,712,372,677,389],"_ncst_magazine_issue":[],"series":[],"class_list":["post-35372","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-economics","category-international-economics","category-research-from-poole","tag-_from-newswire-collection-259","tag-economics","tag-hamid-firooz","tag-international-economics","tag-research","tag-trade"],"displayCategory":{"term_id":641,"name":"International Economics","slug":"international-economics","term_group":0,"term_taxonomy_id":641,"taxonomy":"category","description":"","parent":0,"count":7,"filter":"raw"},"acf":{"ncst_posts_meta_modified_date":null},"_links":{"self":[{"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/posts\/35372","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/users\/732"}],"replies":[{"embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/comments?post=35372"}],"version-history":[{"count":3,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/posts\/35372\/revisions"}],"predecessor-version":[{"id":35758,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/posts\/35372\/revisions\/35758"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/media\/35373"}],"wp:attachment":[{"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/media?parent=35372"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/categories?post=35372"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/tags?post=35372"},{"taxonomy":"_ncst_magazine_issue","embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/_ncst_magazine_issue?post=35372"},{"taxonomy":"series","embeddable":true,"href":"https:\/\/poole.ncsu.edu\/thought-leadership\/wp-json\/wp\/v2\/series?post=35372"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}