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Quality Ladders In A Ricardian Model Of Trade With Nonhomothetic Preferences

  • Esteban Jaimovich
  • Vincenzo Merella

The literature on North-South trade has explored conditions under which international trade might magnify income disparities between the advanced North and the backward South. Little attention has yet been placed on the effect of trade on countries that do not display substantial dissimilarities concerning aggregate capital endowments. We show that even when no single country is technologically more advanced than any other one and productivity changes are uniform and identical in all countries, international trade may still be a source of income divergence when nonhomothetic preferences and quality ladders are jointly taken into account. Income divergence will be experienced when comparative advantages induce patterns of specialisation that, although optimal for each country at some initial point in time, do not offer the same scope for improvements in terms of subsequent quality upgrading of final products.

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File URL: http://hdl.handle.net/10.1111/j.1542-4774.2012.01077.x
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Article provided by European Economic Association in its journal Journal of the European Economic Association.

Volume (Year): 10 (2012)
Issue (Month): 4 (08)
Pages: 908-937

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Handle: RePEc:bla:jeurec:v:10:y:2012:i:4:p:908-937
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  1. 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.
  2. Juan Carlos Hallak & Peter K. Schott, 2008. "Estimating Cross-Country Differences in Product Quality," NBER Working Papers 13807, National Bureau of Economic Research, Inc.
  3. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," Review of Economic Studies, Oxford University Press, vol. 77(4), pages 1450-1476.
  4. Benedetti Fasil, Cristiana & Borota, Teodora, 2010. "World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity," Working Paper Series 2010:7, Uppsala University, Department of Economics.
  5. Fajgelbaum, Pablo & Grossman, Gene M. & Helpman, Elhanan, 2011. "Income distribution, product quality, and international trade," Policy Research Working Paper Series 5843, The World Bank.
  6. 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.
  7. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
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