Skip to main content

Why Transition Countries May Specialize in Low-Quality Production

Abstract.

Politicians and economists of transition countries fear a low-quality trap for their economies. We present a model of international trade with two countries and two qualities of goods model where high-quality production exhibits economies of scale and low-quality production does not. Depending on transaction costs, the low-quality good will be produced either in the low-wage economy (i.e., the transition country) only or it will not be traded at all. Regarding the high-quality good, we discuss three potential reasons why transition countries may be trapped in the production of low quality when economies of scale in production prevail: (a) international trade policy (i.e., GATT / WTO); (b) external economies due to quality uncertainty; (c) external economies due to demand effects (big push). All reasons favor incumbents over entrants and thus lead to a low-quality trap for transition economies due to the existence of incumbents located in industrialized countries.

This is a preview of subscription content, access via your institution.

Author information

Affiliations

Authors

About this article

Cite this article

Dulleck, U., Foster, N. Why Transition Countries May Specialize in Low-Quality Production. Transition Stud Rev 11, 114–124 (2004). https://doi.org/10.1007/s11300-004-0001-4

Download citation

Keywords

  • international trade
  • product quality
  • home market effects