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World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity

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  • Cristiana

    (European University Institute)

  • Teodora Borota

    (Uppsala University)

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    Abstract

    This paper analyzes the role of product quality and labor efficiency in shaping the trade patterns and trade intensities within and across two groups of countries, the developed and richer North and the developing South. Recent empirical literature identifies a positive relation between income per capita and both export and import prices, and also the import prices conditional on exporter. Instead of relying on specific demand side mechanisms such as non-homothetic preferences, we focus on the North-South differences in technology in a four country North-South trade model with two dimensions of firm het- erogeneity. Differences in firms’ product qualities and cost efficiencies result in a price distribution generating different consumption bundles and the observed export and import prices across rich and poor countries. Furthermore, the resulting total expenditure allocation across quality shows that the North (South) spends a larger share of its income on high (low) quality even with the same homothetic preferences across regions.

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    Bibliographic Info

    Paper provided by National Bank of Serbia in its series Working papers with number 19.

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    Length: 28 pages
    Date of creation: Jul 2011
    Date of revision:
    Handle: RePEc:nsb:wpaper:19

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    Postal: National Bank of Serbia, 12 Kralja Petra St, 11 000 Belgrade, Republic of Serbia
    Phone: 381-11/3248-841
    Fax: 381-11/3234-120
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    Web page: http://www.nbs.rs
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    Related research

    Keywords: International trade patterns; North-South trade; import and export prices; heterogeneous firms; product quality;

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    References

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    Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
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    1. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," Working Papers 09-13, Center for Economic Studies, U.S. Census Bureau.
    2. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, vol. 86(1), pages 43-56.
    3. Huergo, Elena & Jaumandreu, Jordi, 2004. "Firms' age, process innovation and productivity growth," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 541-559, April.
    4. David Hummels & Alexandre Skiba, 2002. "Shipping the Good Apples Out? An Empirical Confirmation of the Alchian-Allen Conjecture," NBER Working Papers 9023, National Bureau of Economic Research, Inc.
    5. Coibion, Olivier & Einav, Liran & Hallak, Juan Carlos, 2007. "Equilibrium demand elasticities across quality segments," International Journal of Industrial Organization, Elsevier, vol. 25(1), pages 13-30, February.
    6. Juan Carlos Hallak, 2006. "A Product-Quality View of the Linder Hypothesis," NBER Working Papers 12712, National Bureau of Economic Research, Inc.
    7. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
    8. Juan Carlos Cordoba & Marla Ripoll, 2005. "Endogenous TFP and Cross-Country Income Differences," Development and Comp Systems 0512018, EconWPA.
    9. Elena Huergo & Jordi Jaumandreu, 2004. "How Does Probability of Innovation Change with Firm Age?," Small Business Economics, Springer, vol. 22(3_4), pages 193-207, 04.
    10. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    11. Alain Gabler & Omar Licandro, 2007. "Endogenous Growth through Selection and Imitation," Economics Working Papers ECO2007/26, European University Institute.
    12. Brooks, Eileen L., 2006. "Why don't firms export more? Product quality and Colombian plants," Journal of Development Economics, Elsevier, vol. 80(1), pages 160-178, June.
    13. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Economic Policy, CEPR & CES & MSH, vol. 23, pages 51-91, 01.
    14. Yo Chul Choi & David Hummels & Chong Xiang, 2006. "Explaining Import Variety and Quality: The Role of the Income Distribution," NBER Working Papers 12531, National Bureau of Economic Research, Inc.
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