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How does taste and quality impact on import prices?

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  • Konstantins Benkovskis
  • Julia Wörz

Abstract

Understanding the dynamics of import prices is an important but challenging issue that affects our assessment of welfare. We propose an exact import price index by extending the analysis of Broda and Weinstein (Q J Econ 121(2):541–585, 2006 ), who include growth in product variety in their calculations of import prices. While still relying on Armington’s (Int Monet Fund Staff Pap 16(1):159–178, 1969 ) definition of variety, we relax two assumptions, allowing the set of products and unobserved taste and quality parameter to vary. Our modified import price index shows that gains from variety in European G7 countries, although positive, are small compared with gains from taste and quality. Using food and tobacco products as a benchmark with unchanged taste and quality, we find significant gains from shifts in consumer preferences and improving quality for Germany, France, Italy and the UK between 1995 and 2012. By comparing results based on different benchmark groups we further flag the importance of consumer taste in international trade. Copyright Kiel Institute 2014

Suggested Citation

  • Konstantins Benkovskis & Julia Wörz, 2014. "How does taste and quality impact on import prices?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(4), pages 665-691, November.
  • Handle: RePEc:spr:weltar:v:150:y:2014:i:4:p:665-691
    DOI: 10.1007/s10290-014-0196-3
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    Citations

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    Cited by:

    1. Benkovskis, Konstantins & Wörz, Julia, 2018. "What drives the market share changes? Price versus non-price factors," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 9-29.
    2. Konstantins Benkovskis & Julia Woerz, 2014. ""Made in China" - How Does it Affect Measures of Competitiveness?," Working Papers 2014/04, Latvijas Banka.
    3. repec:hhs:bofitp:2012_019 is not listed on IDEAS
    4. repec:hhs:bofitp:2013_018 is not listed on IDEAS
    5. Joseph, Andreas & Osbat, Chiara, 2016. "How you export matters: the disassortative structure of international trade," Working Paper Series 1958, European Central Bank.
    6. Konstantīns Beņkovskis, 2012. "Competitiveness of Latvia's exporters," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 17-45, December.
    7. Konstantins Benkovskis & Julia Wörz, 2012. "Non-Price Competitiveness Gains of Central, Eastern and Southeastern European Countries in the EU Market," Focus on European Economic Integration, Oesterreichische Nationalbank (Austrian Central Bank), issue 3, pages 27-47.
    8. Konstantins Benkovskis & Julia Wörz, 2016. "Non-price competitiveness of exports from emerging countries," Empirical Economics, Springer, vol. 51(2), pages 707-735, September.
    9. Konstantins Benkovskis & Julia Woerz, 2012. "Evaluation of Non-price Competitiveness of Exports from Central, Eastern and Southeastern European Countries in the EU Market," Working Papers 2012/01, Latvijas Banka.

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    More about this item

    Keywords

    Import price index; Variety; Taste; Quality; Welfare gains; C43; D60; F12; F14; L15;
    All these keywords.

    JEL classification:

    • C43 - Mathematical and Quantitative Methods - - Econometric and Statistical Methods: Special Topics - - - Index Numbers and Aggregation
    • D60 - Microeconomics - - Welfare Economics - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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