Specialization Across Varieties and North-South Competition

Analyzing a new database that makes it possible to disaggregate trade flows across many countries according to unit values, we show that international specialization in terms of quality within industries and product categories plays an important role in the dynamics of North-South competition. The different specialization of countries at different levels of development within products and across varieties is mirrored in the recent shifts in world market shares, which are very different across quality segments: the South is not gaining market share in high-value portions of trade pattern. In this respect Europe's specialization pattern appears to be different from that of the US and Japan, and may allow it to better resist the competitive pressure of the South.