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Decomposing Firm-Product Appeal: How important is Consumer Taste?

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  • Vandenbussche, Hylke
  • Aw-Roberts, Bee Yan
  • Lee, Yi

Abstract

We develop and structurally estimate a trade model in order to identify the importance of consumer taste for exporters. The model separates taste from quality and productivity (TFPQ) at the fi rm-product level. Export data by destination countries allow us to identify the level of taste from consumer heterogeneity across destinations. We decompose export revenue into the contribution of taste, quality and costs. We fi nd that taste is very important and explains about 50% of the variation in export revenue. Productivity (TFPQ) differences between fi rm-products become more prominent than taste in explaining export success only when the cost elasticity of improving quality is high.

Suggested Citation

  • Vandenbussche, Hylke & Aw-Roberts, Bee Yan & Lee, Yi, 2018. "Decomposing Firm-Product Appeal: How important is Consumer Taste?," CEPR Discussion Papers 12707, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:12707
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    Cited by:

    1. William Connell & Emmanuel Dhyne & Hylke Vandenbussche, 2019. "Learning about demand abroad from wholesalers: a B2B analysis," Working Paper Research 377, National Bank of Belgium.
    2. Jörg Mayer, 2021. "Development strategies for middle‐income countries in a digital world—Insights from modern trade economics," The World Economy, Wiley Blackwell, vol. 44(9), pages 2515-2546, September.

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    More about this item

    Keywords

    Taste; Quality; Productivity; Exports; Fi rm-product;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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