IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Love for Quality, Comparative Advantage, and Trade

  • Esteban Jaimovich
  • Vincenzo Merella

We propose a theory of trade in which comparative advantages reveal themselves gradually over the path of development. Following the Ricardian tradition, countries specialise and export the set of goods they are able to produce at relatively lower cost given their exogenous initial endowments. However, we introduce two new features into a Ricardian trade model with horizontally and vertically differentiated goods. First, individuals have nonhomothetic preferences in that their willingness to pay for quality rises with their income. Second, heterogeneities in productivity become more pronounced at higher levels of quality of production. As a result, our theory predicts that the scope for international trade widens and productive specialisation increases as real incomes grow and wealthier consumers raise the quality of their consumption baskets. Our predictions find empirical support in a number tests performed using bilateral trade data at the product level.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.carloalberto.org/assets/working-papers/no.216.pdf
Download Restriction: no

Paper provided by Collegio Carlo Alberto in its series Carlo Alberto Notebooks with number 216.

as
in new window

Length: 47 pages
Date of creation: 2011
Date of revision: 2012
Handle: RePEc:cca:wpaper:216
Contact details of provider: Postal: Via Real Collegio, 30, 10024 Moncalieri (To)
Phone: +390116705000
Fax: +390116476847
Web page: http://www.carloalberto.org/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Vitor Trindade & Muhammed Dalgin & Devashish Mitra, 2006. "Inequality, Nonhomothetic Preferences, And Trade: A Gravity Approach," Working Papers 0606, Department of Economics, University of Missouri, revised 08 May 2006.
  2. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, 07.
  3. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
  4. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
  5. Peter K. Schott, 2004. "Across-product Versus Within-product Specialization in International Trade," The Quarterly Journal of Economics, MIT Press, vol. 119(2), pages 646-677, May.
  6. Claustre Bajona, 2004. "Specific Factors, Learning, and the Dynamics of Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 45(2), pages 499-521, 05.
  7. Ina Simonovska, 2010. "Income differences and prices of tradables," Globalization and Monetary Policy Institute Working Paper 55, Federal Reserve Bank of Dallas.
  8. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
  9. Amit Khandelwal, 2007. "The Long and Short (of) Quality Ladders," 2007 Meeting Papers 244, Society for Economic Dynamics.
  10. Tarasov, Alexander, 2010. "Trade Liberalization and Welfare Inequality: a Demand-Based Approach," Discussion Papers in Economics 11492, University of Munich, Department of Economics.
  11. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 78(2), pages 293-303, July.
  12. Nancy L. Stokey, 1989. "The Volume and Composition of Trade Between Rich and Poor Countries," Discussion Papers 849, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  13. Esteban Jaimovich & Vincenzo Merella, 2010. "Quality Ladders in a Ricardian Model of Trade with Nonhomothetic Preferences," DEGIT Conference Papers c015_033, DEGIT, Dynamics, Economic Growth, and International Trade.
  14. 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.
  15. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  16. Kiminori Matsuyama, 1999. "A Ricardian Model with a Continuum of Goods under Non-homothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Discussion Papers 1241, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  17. Mayer, Thierry & Zignago, Soledad, 2006. "Notes on CEPII’s distances measures," MPRA Paper 26469, University Library of Munich, Germany.
  18. Pablo D. Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2009. "Income Distribution, Product Quality, and International Trade," NBER Working Papers 15329, National Bureau of Economic Research, Inc.
  19. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  20. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  21. Verhoogen, Eric A, 2007. "Trade, Quality Upgrading and Wage Inequality in the Mexican Manufacturing Sector," CEPR Discussion Papers 6385, C.E.P.R. Discussion Papers.
  22. Paulo Bastos & Joana Silva, . "The Quality of a Firm’s Exports: Where you Export to Matters," Discussion Papers 08/18, University of Nottingham, GEP.
  23. Alejandro Artopoulos & Daniel Friel & Juan Carlos Hallak, 2011. "Lifting the Domestic Veil: The Challenges of Exporting Differentiated Goods Across the Development Divide," NBER Working Papers 16947, National Bureau of Economic Research, Inc.
  24. Flam, Harry & Helpman, Elhanan, 1987. "Vertical Product Differentiation and North-South Trade," American Economic Review, American Economic Association, vol. 77(5), pages 810-22, December.
  25. Francois, Joseph F & Kaplan, Seth, 1996. "Aggregate Demand Shifts, Income Distribution, and the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 244-50, May.
  26. Jun Ishii & Kei-Mu Yi, 1997. "The growth of world trade," Research Paper 9718, Federal Reserve Bank of New York.
  27. Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-11, December.
  28. 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.
  29. Guillaume Gaulier & Soledad Zignago, 2010. "BACI: International Trade Database at the Product-Level. The 1994-2007 Version," Working Papers 2010-23, CEPII research center.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:cca:wpaper:216. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Giovanni Bert)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.