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Heterogeneous Firms, Quality, and Trade

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  • Antoniades, Alexis

Abstract

We present a simple and tractable trade model of heterogeneous firms, endogenous quality choice, and endogenous markups. A key feature of the model is that competition not only lowers the cost cut-off between the firms that produce and those that exit, but it also raises the scope for quality differentiation. With both these channels present, the most productive firms respond to competition by raising quality, prices, and markups, while the least productive either exit or respond in the exact opposite manner.

Suggested Citation

  • Antoniades, Alexis, 2015. "Heterogeneous Firms, Quality, and Trade," Journal of International Economics, Elsevier, vol. 95(2), pages 263-273.
  • Handle: RePEc:eee:inecon:v:95:y:2015:i:2:p:263-273
    DOI: 10.1016/j.jinteco.2014.10.002
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    Cited by:

    1. Richard Kneller & Zhihong Yu, 2016. "Quality Selection, Sectoral Heterogeneity and Chinese Exports," Review of International Economics, Wiley Blackwell, vol. 24(4), pages 857-874, September.
    2. repec:bla:jindec:v:64:y:2016:i:4:p:835-874 is not listed on IDEAS
    3. Eckel, Carsten & Unger, Florian, 2015. "Credit constraints, endogenous innovations, and price setting in international trade," Discussion Papers in Economics 24858, University of Munich, Department of Economics.
    4. repec:eee:proeco:v:201:y:2018:i:c:p:216-224 is not listed on IDEAS
    5. Masashige Hamano, 2013. "On business cycles of variety and quality," CREA Discussion Paper Series 13-21, Center for Research in Economic Analysis, University of Luxembourg.
    6. Di Ubaldo, Mattia, 2016. "Firms and trade in downturns," Economics PhD Theses 0416, Department of Economics, University of Sussex.
    7. ByeongHwa Choi & Volodymyr Lugovskyy, 2015. "Positive and Negative Effects of Financial Development on Export Prices," Caepr Working Papers 2015-020 Classification-F, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    8. Picard, P.M., 2015. "Trade, economic geography and the choice of product quality," Regional Science and Urban Economics, Elsevier, vol. 54(C), pages 18-27.
    9. Chunming Zhao & Qun Zhang, 2016. "Input Trade Liberalization and Export Product Scope: Evidence from China," Business and Economic Research, Macrothink Institute, vol. 6(2), pages 118-132, December.
    10. Olga Timoshenko & Paulo Bastos & Daniel Dias, 2016. "Learning, Prices, and Firm Dynamics," Working Papers 2016-11, The George Washington University, Institute for International Economic Policy.
    11. repec:eee:reveco:v:53:y:2018:i:c:p:160-167 is not listed on IDEAS
    12. Békés, Gábor & Hornok, Cecília & Muraközy, Balázs, 2016. "Globalization and the markups of European firms," Kiel Working Papers 2044, Kiel Institute for the World Economy (IfW).
    13. Adriana Peluffo & Juan Ignacio Scasso, 2016. "Destination and source countries: Do they have a role on product quality?," Documentos de Trabajo (working papers) 16-10, Instituto de Economía - IECON.
    14. Alvaro Garcia Marin & Nico Voigtländer, 2018. "Product-Level Efficiency and Core Competence in Multi-Product Plants," 2018 Meeting Papers 737, Society for Economic Dynamics.
    15. Crinò, Rosario & Ogliari, Laura, 2017. "Financial imperfections, product quality, and international trade," Journal of International Economics, Elsevier, vol. 104(C), pages 63-84.
    16. Sergey Kichko & Pierre M. Picard, 2018. "Heterogeneity in Conformism, Firm Selection, and Home Bias," CREA Discussion Paper Series 18-09, Center for Research in Economic Analysis, University of Luxembourg.
    17. McManus, T. Clay & Schaur, Georg, 2016. "The effects of import competition on worker health," Journal of International Economics, Elsevier, vol. 102(C), pages 160-172.
    18. repec:eee:inecon:v:112:y:2018:i:c:p:70-87 is not listed on IDEAS
    19. Tamminen, Saara & Niemi, Janne & Nilsson Hakkala, Katariina, 2017. "The expected economic impacts of the EU-Canada Comprehensive Economic and Trade Agreement in Finland," Research Reports 187, VATT Institute for Economic Research.
    20. repec:wly:jmoncb:v:50:y:2018:i:6:p:1343-1363 is not listed on IDEAS
    21. Brambilla, Irene & Porto, Guido G., 2016. "High-income export destinations, quality and wages," Journal of International Economics, Elsevier, vol. 98(C), pages 21-35.
    22. repec:eee:ecolet:v:155:y:2017:i:c:p:24-27 is not listed on IDEAS
    23. Bernini, Michele & Tomasi, Chiara, 2015. "Exchange rate pass-through and product heterogeneity: Does quality matter on the import side?," European Economic Review, Elsevier, vol. 77(C), pages 117-138.
    24. SAITO Hisamitsu & MATSUURA Toshiyuki, 2016. "Agglomeration Economies, Productivity, and Quality Upgrading," Discussion papers 16085, Research Institute of Economy, Trade and Industry (RIETI).
    25. Ludema, Rodney D. & Yu, Zhi, 2016. "Tariff pass-through, firm heterogeneity and product quality," Journal of International Economics, Elsevier, vol. 103(C), pages 234-249.

    More about this item

    Keywords

    Intra-industry trade; firm heterogeneity; qualilty choice; non-constant markups; quality ladders;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • O14 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Industrialization; Manufacturing and Service Industries; Choice of Technology
    • O47 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Empirical Studies of Economic Growth; Aggregate Productivity; Cross-Country Output Convergence

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