Income Differences and Prices of Tradables
AbstractEmpirical studies ﬁnd a strong positive relationship between a country’s per-capita income and price level of final tradable goods. Among alternative explanations of this observation, I focus on variable mark-ups by ﬁrms. Mark-ups that vary with destinations’ incomes are evident from a clothing manufacturer’s online catalogue featuring unit prices of identical goods sold in 24 countries. Such price discrimination on the basis of income suggests that ﬁrms exploit lower price elasticity of demand for identical goods in richer countries. In order to capture that, I introduce non-homothetic preferences in a model of trade with product differentiation and heterogeneity in firm productivity. The model helps bring theory and data closer along a key dimension: it generates positively related prices and incomes, while preserving desirable features of firm behavior and trade flows of existing frameworks. Quantitatively, the model suggests that variable mark-ups can account for as much as a third of the observed positive relationship between prices of tradables and income across a large sample of countries.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Society for Economic Dynamics in its series 2009 Meeting Papers with number 692.
Date of creation: 2009
Date of revision:
Contact details of provider:
Postal: Society for Economic Dynamics Christian Zimmermann Economic Research Federal Reserve Bank of St. Louis PO Box 442 St. Louis MO 63166-0442 USA
Web page: http://www.EconomicDynamics.org/society.htm
More information through EDIRC
Other versions of this item:
- Ina Simonovska, 2010. "Income differences and prices of tradables," Globalization and Monetary Policy Institute Working Paper 55, Federal Reserve Bank of Dallas.
- Ina Simonovska, 2010. "Income Differences and Prices of Tradables," NBER Working Papers 16233, National Bureau of Economic Research, Inc.
- Ina Simonovska, 2011. "Income Differences and Prices of Tradables," Working Papers 1015, University of California, Davis, Department of Economics.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
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.:
- Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005.
"Market Size, Trade, and Productivity,"
NBER Working Papers
11393, National Bureau of Economic Research, Inc.
- Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
- Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers 201, Centro Studi Luca d\'Agliano, University of Milano.
- Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
- University of Iowa & Michael E. Waugh, 2007.
"International Trade and Income Differences,"
2007 Meeting Papers
492, Society for Economic Dynamics.
- Robert C. Feenstra & Robert E. Lipsey & Haiyan Deng & Alyson C. Ma & Hengyong Mo, 2005. "World Trade Flows: 1962-2000," NBER Working Papers 11040, National Bureau of Economic Research, Inc.
- Costas Arkolakis & Svetlana Demidova & Peter J. Klenow & Andres Rodriguez-Clare, 2008.
"Endogenous Variety and the Gains from Trade,"
American Economic Review,
American Economic Association, vol. 98(2), pages 444-50, May.
- George Alessandria & Joseph P. Kaboski, 2011.
"Pricing-to-Market and the Failure of Absolute PPP,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 3(1), pages 91-127, January.
- Costas Arkolakis, 2008. "Market Penetration Costs and Trade Dynamics," 2008 Meeting Papers 548, Society for Economic Dynamics.
This item has more than 25 citations. To prevent cluttering this page, these citations are listed on a separate page. reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann).
If references are entirely missing, you can add them using this form.