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A simple model of quality heterogeneity and international trade

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  • Dinopoulos, Elias
  • Unel, Bulent

Abstract

This paper develops a trade model with firm-specific quality heterogeneity in markets where firms face the threat of imitation and engage in limit-pricing strategies. Firms producing high-quality (high-price) products export, whereas firms producing lower-quality (lower-price) products serve the domestic market. Trade liberalization raises the average domestic markup and increases the number of products consumed in each country. However, the impact of trade liberalization on the average export markup depends on the nature of liberalization. Although the presence of markups renders the laissez-faire equilibrium suboptimal, trade liberalization increases national and global welfare.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Economic Dynamics and Control.

Volume (Year): 37 (2013)
Issue (Month): 1 ()
Pages: 68-83

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Handle: RePEc:eee:dyncon:v:37:y:2013:i:1:p:68-83

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Web page: http://www.elsevier.com/locate/jedc

Related research

Keywords: Firm heterogeneity; Monopolistic competition; Product quality; Trade costs; Trade liberalization;

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Cited by:
  1. Yongjin Wang & Laixun Zhao, 2013. "Saving Good Jobs under Global Competition by Rewarding Quality and Efforts," Discussion Paper Series DP2013-17, Research Institute for Economics & Business Administration, Kobe University, revised May 2013.
  2. Bulent Unel & Elias Dinopoulos, . "Quality Heterogeneity and Global Economic Growth," Departmental Working Papers 2009-06, Department of Economics, Louisiana State University.
  3. Bulent Unel, . "The Interaction Between Technology Adoption and Trade When Firms are Heterogeneous," Departmental Working Papers 2010-03, Department of Economics, Louisiana State University.

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