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Product quality, firm heterogeneity and trade liberalization

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  • Antoine Gervais

Abstract

This paper develops a framework for studying the general equilibrium effects of endogenous quality upgrading, a new margin of trade, on the welfare impact of trade liberalization. The theoretical model introduces product quality differentiation amongst heterogeneous firms and focuses on supply-side determinants of international trade. Among other results, in general equilibrium, trade liberalization decreases the share of high-quality varieties in exports and the average productivity of exporters. These changes affect average export price in opposite ways. Nevertheless, trade liberalization in the quality-extended model increases consumers’ welfare by more than in the benchmark model.

Suggested Citation

  • Antoine Gervais, 2015. "Product quality, firm heterogeneity and trade liberalization," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 24(4), pages 523-541, June.
    • Handle: RePEc:taf:jitecd:v:24:y:2015:i:4:p:523-541
    DOI: 10.1080/09638199.2014.932426
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    References listed on IDEAS

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