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Income Effects and Vertical Differentiation in International Trade

Author

Listed:
  • PICARD, Pierre M.

    (Université catholique de Louvain, CORE, Belgium)

  • TAMPIERI, Alessandro

Abstract

We analyse a trade model with non-homothetic preferences and different quality versions of each product. Income effects drive the quality composition of consumption, production and trade flows. We show that a rise in local population fosters local asymmetric specialization in high-quality production and exports while it harms low income groups. By contrast, an increase in local productivity may generate specialization in high quality production, which in turn may trigger an immiserizing growth process. Weaker comparative advantages induce firm to move and make a local productivity improvement more likely to increase production of higher quality goods everywhere.

Suggested Citation

  • PICARD, Pierre M. & TAMPIERI, Alessandro, 2016. "Income Effects and Vertical Differentiation in International Trade," LIDAM Discussion Papers CORE 2016023, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
    • Handle: RePEc:cor:louvco:2016023
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    File URL: https://sites.uclouvain.be/core/publications/coredp/coredp2016.html
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    Cited by:

    1. Ceccantoni, Giulia & Tarola, Ornella & Zanaj, Skerdilajda, 2018. "Green Consumption and Relative Preferences in a Vertically Differentiated International Oligopoly," Ecological Economics, Elsevier, vol. 149(C), pages 129-139.
    2. P. M. Picard & A. Tampieri, 2021. "Vertical differentiation and trade among symmetric countries," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(4), pages 1319-1355, June.
    3. Giuseppe Celi, 2021. "The Labour Market Effects of International Trade in the Presence of Vertical Product Differentiation: Some Methodological Remarks in Retrospect," JRFM, MDPI, vol. 14(3), pages 1-26, March.

    More about this item

    Keywords

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    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • 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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