Advanced Search
MyIDEAS: Login to save this paper or follow this series

Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?

Contents:

Author Info

Abstract

Starting with Krugman (1980), much literature has analyzed how trade liberalization affects the economy based on the notion that trade is motivated by consumer’s love of variety. In this paper, I augment these preferences by the determinants of demand for heterogeneous products. The model features products with heterogeneous attributes and consumers with heterogeneous tastes for attributes. Allowing for international trade, the model predicts a within-industry home market effect, i.e., that high domestic demand for an attribute leads to entry of firms producing a fitting output and, consequently, net exports of products embodying the attribute. Second, the model rationalizes why consumption is home-biased in the short run. Each country’s industry is optimized for the preferences of domestic consumers and thus somewhat inappropriate for the export market. Third, in the long run, countries specialize further and the within-industry home market effect intensifies. Intriguingly, (as long as it is incomplete) this specialization implies that the home bias disappears completely, thus demonstrating that Linder’s (1961) conjecture describes a temporary phenomenon that does not prevail in general equilibrium

Download Info

If 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.
File URL: http://www.szgerzensee.ch/fileadmin/Dateien_Anwender/Dokumente/working_papers/wp-0905.pdf
File Function: Full text
Download Restriction: None

Bibliographic Info

Paper provided by Swiss National Bank, Study Center Gerzensee in its series Working Papers with number 09.05.

as in new window
Length: 42 pages
Date of creation: Aug 2009
Date of revision:
Handle: RePEc:szg:worpap:0905

Contact details of provider:
Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee
Phone: ++41 (0)31 780 31 31
Fax: ++41 (0)31 780 31 00
Email:
Web page: http://www.szgerzensee.ch/

Order Information:
Postal: Studienzentrum Gerzensee, Postfach 21, 3115 Gerzensee
Email:

Related research

Keywords:

This paper has been announced in the following NEP Reports:

References

References listed on IDEAS
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.:
as in new window
  1. Costas Arkolakis, 2010. "Market Penetration Costs and the New Consumers Margin in International Trade," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 118(6), pages 1151 - 1199.
  2. Matthieu Crozet & Keith Head & Thierry Mayer, 2009. "Quality sorting and trade: Firm-level evidence for French wine," Sciences Po publications 7295, Sciences Po.
  3. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers, Center for Economic Studies, U.S. Census Bureau 00-08, Center for Economic Studies, U.S. Census Bureau.
  4. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, American Economic Association, vol. 70(5), pages 950-59, December.
  5. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 87(2), pages 253-66, April.
  6. Juan Carlos Hallak & Jagadeesh Sivadasan, 2009. "Firms' Exporting Behavior under Quality Constraints," NBER Working Papers 14928, National Bureau of Economic Research, Inc.
  7. Atkin, David, 2010. "Trade, Tastes and Nutrition in India," Working Papers, Yale University, Department of Economics 80, Yale University, Department of Economics.
  8. Eaton, Jonathan & Kortum, Samuel S & Kramarz, Francis, 2009. "An Anatomy of International Trade: Evidence from French Firms," CEPR Discussion Papers, C.E.P.R. Discussion Papers 7111, C.E.P.R. Discussion Papers.
  9. David Hummels, 2007. "Transportation Costs and International Trade in the Second Era of Globalization," Journal of Economic Perspectives, American Economic Association, American Economic Association, vol. 21(3), pages 131-154, Summer.
  10. Bernard, Andrew & Jensen, J Bradford & Redding, Stephen J & Schott, Peter, 2007. "Firms in International Trade," CEPR Discussion Papers, C.E.P.R. Discussion Papers 6277, C.E.P.R. Discussion Papers.
  11. Pablo D. Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2009. "Income Distribution, Product Quality, and International Trade," NBER Working Papers 15329, National Bureau of Economic Research, Inc.
  12. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  13. Acemoglu, D. & Zilibotti, F., 1998. "Productivity Differences," Papers, Stockholm - International Economic Studies 660, Stockholm - International Economic Studies.
  14. Timothy J. Kehoe & Kim J. Ruhl, 2009. "How important is the new goods margin in international trade?," Staff Report, Federal Reserve Bank of Minneapolis 324, Federal Reserve Bank of Minneapolis.
  15. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, Oxford University Press, vol. 126(3), pages 1271-1318.
  16. Raphael A. Auer & Thomas Chaney & Philip Sauré, 2012. "Quality pricing-to-market," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 125, Federal Reserve Bank of Dallas.
  17. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, American Economic Association, vol. 67(3), pages 297-308, June.
  18. Davis, D.R., 1997. "The Home Market, Trade, and Industrial Structure," Papers, Harvard - Institute for International Development 597, Harvard - Institute for International Development.
  19. Marc J. Melitz & Gianmarco I.P. Ottaviano, 2005. "Market Size, Trade, and Productivity," Development Working Papers, Centro Studi Luca d\'Agliano, University of Milano 201, Centro Studi Luca d\'Agliano, University of Milano.
  20. Raphael Auer & Thomas Chaney, 2009. "Exchange rate pass-through in a competitive model of pricing-to-market," Globalization and Monetary Policy Institute Working Paper, Federal Reserve Bank of Dallas 23, Federal Reserve Bank of Dallas.
  21. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, Elsevier, vol. 77(2), pages 265-275, April.
  22. Baldwin, Richard & Krugman, Paul, 1989. "Persistent Trade Effects of Large Exchange Rate Shocks," The Quarterly Journal of Economics, MIT Press, MIT Press, vol. 104(4), pages 635-54, November.
  23. David Hummels & James Levinsohn, 1993. "Monopolistic Competition and International Trade: Reconsidering the Evidence," NBER Working Papers 4389, National Bureau of Economic Research, Inc.
  24. Paula Bustos, 2011. "The Impact of Trade Liberalization on Skill Upgrading Evidence from Argentina," Working Papers 559, Barcelona Graduate School of Economics.
  25. Goldberg, Pinelopi Koujianou & Verboven, Frank, 1998. "The Evolution of Price Dispersion in the European Car Market," CEPR Discussion Papers, C.E.P.R. Discussion Papers 2029, C.E.P.R. Discussion Papers.
  26. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports, Federal Reserve Bank of New York 96, Federal Reserve Bank of New York.
  27. Eric Verhoogen, 2007. "Trade, quality upgrading and wage inequality in the Mexican manufacturing sector," Discussion Papers, Columbia University, Department of Economics 0607-08, Columbia University, Department of Economics.
  28. Richard Baldwin & James Harrigan, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," NBER Working Papers 13214, National Bureau of Economic Research, Inc.
  29. Cuñat, Alejandro & Maffezzoli, Marco, 2005. "Can Comparative Advantage Explain the Growth of US Trade?," CEPR Discussion Papers, C.E.P.R. Discussion Papers 5348, C.E.P.R. Discussion Papers.
  30. Christian Broda & David Weinstein, 2004. "Globalization and the gains from variety," Staff Reports, Federal Reserve Bank of New York 180, Federal Reserve Bank of New York.
  31. Mussa, Michael & Rosen, Sherwin, 1978. "Monopoly and product quality," Journal of Economic Theory, Elsevier, Elsevier, vol. 18(2), pages 301-317, August.
  32. John Sutton, 2007. "Quality, Trade and the Moving Window: The Globalisation Process," Economic Journal, Royal Economic Society, Royal Economic Society, vol. 117(524), pages F469-F498, November.
  33. Gordon H. Hanson & Chong Xiang, 2002. "The Home Market Effect and Bilateral Trade Patterns," NBER Working Papers 9076, National Bureau of Economic Research, Inc.
  34. Johnson, Robert C., 2012. "Trade and prices with heterogeneous firms," Journal of International Economics, Elsevier, Elsevier, vol. 86(1), pages 43-56.
  35. Goldberg, Pinelopi K. & Verboven, Frank, 2005. "Market integration and convergence to the Law of One Price: evidence from the European car market," Journal of International Economics, Elsevier, Elsevier, vol. 65(1), pages 49-73, January.
  36. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, American Economic Association, vol. 77(5), pages 810-22, December.
  37. Sanghamitra Das & Mark J. Roberts & James R. Tybout, 2001. "Market entry costs, producer heterogeneity and export dynamics," Indian Statistical Institute, Planning Unit, New Delhi Discussion Papers, Indian Statistical Institute, New Delhi, India 03-10, Indian Statistical Institute, New Delhi, India.
  38. Holmes, Thomas J. & Stevens, John J., 2005. "Does home market size matter for the pattern of trade?," Journal of International Economics, Elsevier, Elsevier, vol. 65(2), pages 489-505, March.
  39. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, Econometric Society, vol. 71(6), pages 1695-1725, November.
  40. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  41. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, Elsevier, vol. 68(1), pages 238-265, January.
  42. Baier, Scott L. & Bergstrand, Jeffrey H., 2001. "The growth of world trade: tariffs, transport costs, and income similarity," Journal of International Economics, Elsevier, Elsevier, vol. 53(1), pages 1-27, February.
  43. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 89(5), pages 959-73, October.
  44. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics, Boston College Department of Economics 485, Boston College Department of Economics.
  45. Glazer, Amihai & Ranjan, Priya, 2003. "Preference heterogeneity, wage inequality, and trade," Journal of International Economics, Elsevier, Elsevier, vol. 60(2), pages 455-469, August.
  46. 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.
  47. Trefler, Daniel, 1995. "The Case of the Missing Trade and Other Mysteries," American Economic Review, American Economic Association, American Economic Association, vol. 85(5), pages 1029-46, December.
  48. Robert Johnson, 2008. "Trade and Prices with Heterogeneous Firms," 2008 Meeting Papers 244, Society for Economic Dynamics.
  49. Costas Arkolakis & Arnaud Costinot & Andrés Rodríguez-Clare, 2009. "New Trade Models, Same Old Gains?," NBER Working Papers 15628, National Bureau of Economic Research, Inc.
  50. Antonella Nocco, 2009. "Preference Heterogeneity And Economic Geography," Journal of Regional Science, Wiley Blackwell, Wiley Blackwell, vol. 49(1), pages 33-56.
  51. Juan Carlos Hallak, 2006. "A Product-Quality View of the Linder Hypothesis," NBER Working Papers 12712, National Bureau of Economic Research, Inc.
  52. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, American Economic Association, vol. 98(4), pages 1707-21, September.
  53. Anderson, Simon P. & De Palma, Andre & Thisse, Jacques-Francois, 1987. "The CES is a discrete choice model?," Economics Letters, Elsevier, Elsevier, vol. 24(2), pages 139-140.
  54. Bruce A. Blonigen & Wesley W. Wilson, 1999. "Explaining Armington: What Determines Substitutability Between Home and Foreign Goods?," Canadian Journal of Economics, Canadian Economics Association, Canadian Economics Association, vol. 32(1), pages 1-21, February.
Full references (including those not matched with items on IDEAS)

Citations

Lists

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Statistics

Access and download statistics

Corrections

When requesting a correction, please mention this item's handle: RePEc:szg:worpap:0905. See general 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: (library).

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.