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Trade of quality differentiated goods and import elasticities

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  • Stefano Chiarlone

Abstract

This paper focus on the analysis of import demand functions in presence of quality differentiated products. This issue is more and more relevant because of the strong evidence of such kind of differentiation. Here we first derive individual elasticities, then we aggregate them to the national level without referring to the representative consumer hypothesis. We find that quality reduces reaction to prices without affecting that to income. Interestingly at the national level it seems to emerge that richer country should have imports less reactive to prices. That imply that they could be easily able to move towards high quality-high price production without external balance and competitive problems. The opposite seems to be true for poorer countries. Finally, we show that overlooking quality variables in the estimation generate underestimates of the elasticities to relative prices and to income.

Suggested Citation

  • Stefano Chiarlone, 2000. "Trade of quality differentiated goods and import elasticities," LIUC Papers in Economics 72, Cattaneo University (LIUC).
  • Handle: RePEc:liu:liucec:72
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    References listed on IDEAS

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    1. Khan, Mohsm S. & Ross, Knud Z., 1977. "The functional form of the aggregate import demand equation," Journal of International Economics, Elsevier, vol. 7(2), pages 149-160, May.
    2. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    3. David Greenaway & Robert Hine & Chris Milner, 1994. "Country-specific factors and the pattern of horizontal and vertical intra-industry trade in the UK," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 130(1), pages 77-100, March.
    4. Aturupane, Chonira & Djankov, Simeon & Hoekman, Bernard, 1997. "Determinants of intra-industry trade between East and West Europe," Policy Research Working Paper Series 1850, The World Bank.
    5. Dipendra Sinha, 1997. "Determinants of Import Demand in Thailand," International Economic Journal, Taylor & Francis Journals, vol. 11(4), pages 73-873.
    6. Goldstein, Morris & Khan, Mohsin S., 1985. "Income and price effects in foreign trade," Handbook of International Economics,in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 2, chapter 20, pages 1041-1105 Elsevier.
    7. George C. Davis, 1995. "Product Differentiation and Representative Agent Import Demand Systems: A Reconsideration and Reconciliation," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 43(1), pages 149-164, March.
    8. Lancaster, Kelvin, 1980. "Intra-industry trade under perfect monopolistic competition," Journal of International Economics, Elsevier, vol. 10(2), pages 151-175, May.
    9. Xiaoling Hu & Yue Ma, 1999. "International intra-industry trade of China," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 135(1), pages 82-101, March.
    10. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-973, October.
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    Cited by:

    1. Pavel Kadochnikov, 2006. "An Analysis of Import Substitution in Russia after the 1998 Crisis," Research Paper Series, Gaidar Institute for Economic Policy, issue 95, pages 148-148.
    2. Borin, Alessandro & Lamieri, Marco, 2007. "Estimating Product Quality in International Trade," MPRA Paper 14678, University Library of Munich, Germany.

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    JEL classification:

    • F10 - International Economics - - Trade - - - General

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