Product Quality, R&D Investment, and International Trade
We ask whether incorporating product quality differentiation has real effects on trade flows and welfare. We develop and calibrate a multi-country, general equilibrium model of international trade that includes endogenous product quality differentiation amongst heterogeneous firms. Separable transportation and ad valorem trade costs as in Hummels and Skiba (2004) creates a mechanism for product quality to have real effects. The model provides a framework to quantify the effects of quality differentiation on trade flows and welfare in response to a trade liberalization. We find that this channel amplifies the effects of trade liberalization on welfare and exports by 46% and 34%, respectively. Roughly 80% of these effects are driven by liberalization of tariffs rather than transport or fixed export costs.
|Date of creation:||2011|
|Contact details of provider:|| Postal: Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA|
Web page: http://www.EconomicDynamics.org/
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- Costas Arkolakis, 2010.
"Market Penetration Costs and the New Consumers Margin in International Trade,"
Journal of Political Economy,
University of Chicago Press, vol. 118(6), pages 1151-1199.
- Costas Arkolakis, 2008. "Market Penetration Costs and the New Consumers Margin in International Trade," NBER Working Papers 14214, National Bureau of Economic Research, Inc.
- Antoine Gervais, 2015.
"Product quality and firm heterogeneity in international trade,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 48(3), pages 1152-1174, August.
- Antoine Gervais, 2013. "Product Quality and Firm Heterogeneity in International Trade," Working Papers 13-08, Center for Economic Studies, U.S. Census Bureau.
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