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Quality Polarization and International Trade

Author

Listed:
  • Till Ferdinand Hollstein

    (Universitat de Barcelona)

  • Kristian Estevez

    (Universitat de Barcelona)

Abstract

This paper builds a model that examines firm heterogeneity across two dimensions: productivity and quality. We show that when firms are able to choose their input quality and there exists a negative relationship between a firm's product quality and their marginal cost, this can lead to a non-unimodal distribution of quality across firms. Trade liberalization, represented by reductions in trade costs, and stronger vertical linkages, represented by an increase in the cost share of intermediate goods, shift the distribution of firms towards the modes of the distribution, which we call quality polarization. With this approach, we are able to explain empirical trade patterns relating to firm size, prices, and quality of exported goods.

Suggested Citation

  • Till Ferdinand Hollstein & Kristian Estevez, 2018. "Quality Polarization and International Trade," UB School of Economics Working Papers 2018/380, University of Barcelona School of Economics.
    • Handle: RePEc:ewp:wpaper:380web
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    File URL: http://hdl.handle.net/2445/124422
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    More about this item

    Keywords

    Heterogeneous firms; international trade; quality.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L16 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Industrial Organization and Macroeconomics; Macroeconomic Industrial Structure
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology

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