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Quality and Trade

  • Kevin M. Murphy
  • Andrei Shleifer

We present a model of trade in which similar countries trade more with each other than very different countries. The reason is that high human capital countries have a comparative advantage at producing high quality goods, but are also rich enough to want to consume high quality. As a result, countries choose trading partners at a similar level of development, who produce similar quality products. The model helps account for the observed trade patterns, and sheds light on international income comparisons. It also helps explain recent concerns of Eastern European countries that they have "nothing to sell" to the West.

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File URL: http://www.nber.org/papers/w3622.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 3622.

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Date of creation: Feb 1991
Date of revision:
Publication status: published as Journal of Developmental Economics, June 1997, Vol. 53(1): 1-15.
Handle: RePEc:nbr:nberwo:3622
Note: ITI IFM
Contact details of provider: Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
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Web page: http://www.nber.org
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  1. Grossman, Gene M & Helpman, Elhanan, 1991. "Quality Ladders and Product Cycles," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 557-86, May.
  2. 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.
  3. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  4. Raymond Vernon, 1970. "Introduction to "The Technology Factor in International Trade"," NBER Chapters, in: The Technology Factor in International Trade, pages 1-8 National Bureau of Economic Research, Inc.
  5. Nancy L. Stokey, 1990. "Human Capital, Product Quality, and Growth," Discussion Papers 883, Northwestern University, Center for Mathematical Studies in Economics and Management Science.
  6. Deardorff, Alan V., 1984. "Testing trade theories and predicting trade flows," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 10, pages 467-517 Elsevier.
  7. repec:sae:niesru:v:111:y::i:1:p:48-61 is not listed on IDEAS
  8. 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.
  9. Raymond Vernon, 1970. "The Technology Factor in International Trade," NBER Books, National Bureau of Economic Research, Inc, number vern70-1, October.
  10. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
  11. Jones, Ronald W. & Peter Neary, J., 1984. "The positive theory of international trade," Handbook of International Economics, in: R. W. Jones & P. B. Kenen (ed.), Handbook of International Economics, edition 1, volume 1, chapter 1, pages 1-62 Elsevier.
  12. 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.
  13. Kelvin J. Lancaster, 1966. "A New Approach to Consumer Theory," Journal of Political Economy, University of Chicago Press, vol. 74, pages 132.
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