Quality variations and the choice between foreign and indigenous goods or technology

In this paper, different production techniques are distinguished by both their resource requirements and the quality of their outputs. The optimal choice of production methods depends upon demand conditions, as well as the economy's capital-labor endowment and the technical characteristics of the alternatives. When product quality improvement is possible through the adoption of a foreign, advanced, capital-intensive technique, at most two techniques should be employed and the more closely matched are the capital-labor requirement of the advanced method and the aggregate capital-labor ratio, the greater the extent of adoption. The presence of a competing quality-improving activity using the indigenous technology reduces the range of aggregate capital-labor endowments for which the advanced technique should be employed. We consider quality inspection of units which reduces the amount of tradable output produced by given inputs as its market value increases. Economies of scale, in that the per unit cost of a given quality improvement falls with increasing sectoral output, are included.