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Quality Ladders in a Ricardian Model of Trade with Nonhomothetic Preferences

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  • Esteban Jaimovich
  • Vincenzo Merella

Abstract

The literature on North-South trade has explored conditions under which international trade might magnify income disparities between the advanced North and the backward South. Little attention has yet been placed on the effect of trade on countries that do not display substantial dissimilarities concerning aggregate capital endowments. We show that even when no single country is technologically more advanced than any other one and productivity changes are uniform and identical in all countries, international trade may still be a source of income divergence when nonhomothetic preferences and quality ladders are jointly taken into account. Income divergence will be experienced when comparative advantages induce patterns of specialisation that, although optimal for each country at some initial point in time, do not offer the same scope for improvements in terms of subsequent quality upgrading of final products.

Suggested Citation

  • 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.
    • Handle: RePEc:deg:conpap:c015_033
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    References listed on IDEAS

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    Cited by:

    1. Jaimovich, Esteban & Madzharova, Boryana & Merella, Vincenzo, 2023. "Inside the white box: Unpacking the determinants of quality and vertical specialization," European Economic Review, Elsevier, vol. 152(C).
    2. Pierre M. Picard & Alessandro Tampieri, 2016. "Income Effects and Vertical Differentiation in International Trade," DEM Discussion Paper Series 16-05, Department of Economics at the University of Luxembourg.
    3. Benedetti Fasil, Cristiana & Borota, Teodora, 2013. "World trade patterns and prices: The role of productivity and quality heterogeneity," Journal of International Economics, Elsevier, vol. 91(1), pages 68-81.
    4. Lisandra Flach & Eckhard Janeba, 2017. "Income inequality and export prices across countries," Canadian Journal of Economics, Canadian Economics Association, vol. 50(1), pages 162-200, February.
    5. Esteban Jaimovich, 2021. "Quality growth: from process to product innovation along the path of development," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 71(2), pages 761-793, March.
    6. Joachim Stibora & Albert de Vaal, 2015. "Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 239-270, May.
    7. Vincenzo Merella & Josef Tauser, 2022. "Import Quality in Former Centrally Planned EU Countries," Carlo Alberto Notebooks 684 JEL Classification: F, Collegio Carlo Alberto.
    8. Cinquetti, Carlos & Nunes De Faria, Rosane, 2016. "Direction, Extension and Price of Exports’ Quality," Conference papers 332801, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    9. Ulrich Schetter & Adrian Jäggi & Maik T. Schneider, 2021. "Inequality, Openness, and Growth through Creative Destruction," Growth Lab Working Papers 171, Harvard's Growth Lab.
    10. Jaimovich, Esteban & Merella, Vincenzo, 2015. "Love for quality, comparative advantage, and trade," Journal of International Economics, Elsevier, vol. 97(2), pages 376-391.
    11. Vincenzo Merella & Stephen E. Satchell, 2014. "Technology Shocks and Asset Pricing: The Role of Consumer Confidence," Carlo Alberto Notebooks 352, Collegio Carlo Alberto.
    12. Andrea Ciani, 2021. "Income inequality and the quality of imports," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 157(2), pages 375-416, May.
    13. Carlos A. Cinquetti, 2018. "Comparative Advantages and Demand in the New Competitive Ricardian Models," Foreign Trade Review, , vol. 53(1), pages 29-48, February.
    14. Miao, Zhuang & Li, Yifan & Duan, Sisong, 2020. "Income inequality of destination countries and trade patterns: Evidence from Chinese firm-level data," MPRA Paper 99441, University Library of Munich, Germany.
    15. 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.
    16. Schetter, Ulrich, 2016. "Comparative Advantages with Product Complexity and Product Quality," VfS Annual Conference 2016 (Augsburg): Demographic Change 145933, Verein für Socialpolitik / German Economic Association.
    17. Yilmazkuday, Hakan, 2016. "Constant versus variable markups: Implications for the law of one price," International Review of Economics & Finance, Elsevier, vol. 44(C), pages 154-168.
    18. Vincenzo Merella, 2014. "Do Quality Ladders Rationalise the Observed Engel Curves?," BCAM Working Papers 1401, Birkbeck Centre for Applied Macroeconomics.

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