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World trade patterns and prices: The role of productivity and quality heterogeneity

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  • Benedetti Fasil, Cristiana
  • Borota, Teodora

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 two groups of evidence — the product lines evidence on different export strategies and sources of competitiveness across product groups and countries, and the aggregate trade flows evidence on a positive relation between the income per capita and both export and import prices (also conditional on the exporter). We attempt to provide a theoretical background for these findings and focus on the North–South productivity differences in a four country North–South trade model with two dimensions of firm heterogeneity. Differences in the firms' product quality and cost efficiency impose different competitiveness sources when entering more difficult markets and result in the observed export and import prices and consumption bundles across the rich and poor countries.

Suggested Citation

  • Benedetti Fasil, Cristiana & Borota, Teodora, 2013. "World trade patterns and prices: The role of productivity and quality heterogeneity," Journal of International Economics, Elsevier, vol. 91(1), pages 68-81.
  • Handle: RePEc:eee:inecon:v:91:y:2013:i:1:p:68-81
    DOI: 10.1016/j.jinteco.2013.04.004
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    Cited by:

    1. Esteban Jaimovich & Vincenzo Merella, 2012. "Quality Ladders In A Ricardian Model Of Trade With Nonhomothetic Preferences," Journal of the European Economic Association, European Economic Association, vol. 10(4), pages 908-937, August.
    2. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    3. Nguyen, Daniel X., 2012. "Demand uncertainty: Exporting delays and exporting failures," Journal of International Economics, Elsevier, vol. 86(2), pages 336-344.
    4. Daqing Yao & John Whalley, 2015. "Assessing the Effects of the MFA/ATC from US and World Trade Data after Its Removal," NBER Working Papers 21299, National Bureau of Economic Research, Inc.
    5. Schetter, Ulrich, 2016. "Comparative Advantages with Product Complexity and Product Quality," Annual Conference 2016 (Augsburg): Demographic Change 145933, Verein für Socialpolitik / German Economic Association.

    More about this item

    Keywords

    International trade patterns; North–South trade; Import and export prices; Heterogeneous firms; Product quality;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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