IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Trade in quality and income distribution: an analysis of the enlarged EU market

  • Hélène Latzer
  • Florian Mayneris

This paper contributes to the understanding of the determinants of country-level comparative advantages in terms of quality. More precisely, while the literature has mainly focused so far on supply-side determinants of such comparative advantages, we investigate both theoretically and empirically the role played by income distribution (average income and level of inequalities) of a country on the quality of its exports. Doing so, we provide new insights on the existence of demand-based determinants of the quality content of a country’s exports, in line with the Linder (1961) hypothesis, claiming that firms produce and export goods suited to the specific tastes of their local consumers. We build a model with economies of scale where non-homothetic preferences and within-country income differences determine the quality composition of production and exports. Having neutralized any supply-side comparative advantage, we show that richer countries produce and export higher quality goods, while the level of inequalities has an heterogenous impact, positively affecting the quality content of exports for rich enough countries only. We then corroborate our theoretical predictions on bilateral trade data for the enlarged European Union (EU), an integrated market displaying significant heterogeneity in terms of both average income and within-country inequalities of its members. Furthermore, we are able to show that in terms of magnitude of the effects, inequalities are a second-order demand-based determinant of the quality of exports as compared to average income.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.beta-umr7522.fr/productions/publications/2011/2011-21.pdf
Download Restriction: no

Paper provided by Bureau d'Economie Théorique et Appliquée, UDS, Strasbourg in its series Working Papers of BETA with number 2011-21.

as
in new window

Length:
Date of creation: 2011
Date of revision:
Handle: RePEc:ulp:sbbeta:2011-21
Contact details of provider: Postal:
PEGE. 61, Aven. de la Forêt-Noire 67000 Strasbourg

Phone: +33 3 68 85 20 69
Fax: +33 3 68 85 20 70
Web page: http://www.beta-umr7522.fr/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Martin, Julien, 2012. "Markups, quality, and transport costs," European Economic Review, Elsevier, vol. 56(4), pages 777-791.
  2. Angela Cheptea & Lionel Fontagné & Soledad Zignago, 2010. "European Export Performance," Working Papers 2010-12, CEPII research center.
  3. Davis, Donald R. & Weinstein, David E., 2003. "Market access, economic geography and comparative advantage: an empirical test," Journal of International Economics, Elsevier, vol. 59(1), pages 1-23, January.
  4. Antràs, Pol & Chor, Davin & Fally, Thibault & Hillberry, Russell, 2012. "Measuring the Upstreamness of Production and Trade Flows," CEPR Discussion Papers 8839, C.E.P.R. Discussion Papers.
  5. Guillaume Gaulier & Soledad Zignago, 2010. "BACI: International Trade Database at the Product-Level. The 1994-2007 Version," Working Papers 2010-23, CEPII research center.
  6. Ina Simonovska, 2009. "Income Differences and Prices of Tradables," 2009 Meeting Papers 692, Society for Economic Dynamics.
  7. Eddy Bekkers & Joseph F. Francois & Miriam Manchin, 2012. "Import Prices, Income, and Inequality," wiiw Working Papers 82, The Vienna Institute for International Economic Studies, wiiw.
  8. Fajgelbaum, Pablo & Grossman, Gene & Helpman, Elhanan, 2011. "Income Distribution, Product Quality, and International Trade," Scholarly Articles 25586659, Harvard University Department of Economics.
  9. Klaus Desmet & Stephen L. Parente, 2008. "Bigger is better: Market size, demand elasticity and innovation," Working Papers 2008-10, Instituto Madrileño de Estudios Avanzados (IMDEA) Ciencias Sociales.
  10. Reto Foellmi & Christian Hepenstrick & Josef Zweimüller, 2010. "Non-homothetic preferences, parallel imports and the extensive margin of international trade," Diskussionsschriften dp1009, Universitaet Bern, Departement Volkswirtschaft.
  11. Gordon H. Hanson & Chong Xiang, 2004. "The Home-Market Effect and Bilateral Trade Patterns," American Economic Review, American Economic Association, vol. 94(4), pages 1108-1129, September.
  12. Ricardo Hausmann & Jason Hwang & Dani Rodrik, 2007. "What you export matters," Journal of Economic Growth, Springer, vol. 12(1), pages 1-25, March.
  13. Rosario Crinò & Paolo Epifani, 2010. "Productivity, Quality, and Export Intensities," Working Papers 457, Barcelona Graduate School of Economics.
  14. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2007. "Specialisation across Varieties within Products and North-South Competition," Working Papers 2007-06, CEPII research center.
  15. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, Oxford University Press, vol. 126(1), pages 417-474.
  16. Krugman, Paul & Venables, Anthony J, 1994. "Globalization and the Inequality of Nations," CEPR Discussion Papers 1015, C.E.P.R. Discussion Papers.
  17. Murata, Yasusada, 2008. "Engel's law, Petty's law, and agglomeration," Journal of Development Economics, Elsevier, vol. 87(1), pages 161-177, August.
  18. Muhammed Dalgin & Devashish Mitra & Vitor Trindade, 2004. "Inequality, Nonhomothetic Preferences, and Trade: A Gravity Approach," NBER Working Papers 10800, National Bureau of Economic Research, Inc.
  19. Maurice Kugler & Eric Verhoogen, 2012. "Prices, Plant Size, and Product Quality," Review of Economic Studies, Oxford University Press, vol. 79(1), pages 307-339.
  20. GABSZEWICZ, Jean J. & WAUTHY, Xavier Y., 2001. "The option of joint purchase in vertically differentiated markets," CORE Discussion Papers 2001013, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  21. Pula, Gabor & Santabárbara, Daniel, 2012. "Is China climbing up the quality ladder?," BOFIT Discussion Papers 23/2012, Bank of Finland, Institute for Economies in Transition.
  22. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
  23. Matilde Bombardini & Giovanni Gallipoli & German Pupato, 2012. "Skill Dispersion and Trade Flows," American Economic Review, American Economic Association, vol. 102(5), pages 2327-48, August.
  24. Amit Khandelwal, 2007. "The Long and Short (of) Quality Ladders," 2007 Meeting Papers 244, Society for Economic Dynamics.
  25. Amiti, Mary & Khandelwal, Amit, 2009. "Competition and Quality Upgrading," CEPR Discussion Papers 7562, C.E.P.R. Discussion Papers.
  26. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 77(2), pages 265-275, April.
  27. Vandenbussche, Hylke & Wauthy, Xavier, 2001. "Inflicting injury through product quality: how European antidumping policy disadvantages European producers," European Journal of Political Economy, Elsevier, vol. 17(1), pages 101-116, March.
  28. Keith Head & Thierry Mayer, 2011. "Gravity, market potential and economic development," Journal of Economic Geography, Oxford University Press, vol. 11(2), pages 281-294, March.
  29. Dongsheng Zhou & Barbara J. Spencer & Ilan Vertinsky, 2000. "Strategic Trade Policy with Endogenous Choice of Quality and Asymmetric Costs," NBER Working Papers 7536, National Bureau of Economic Research, Inc.
  30. Jonathan Vogel & Arnaud Costinot, 2008. "Matching and Inequality in the World Economy," 2008 Meeting Papers 879, Society for Economic Dynamics.
  31. Bastos, Paulo & Silva, Joana, 2010. "The quality of a firm's exports: Where you export to matters," Journal of International Economics, Elsevier, vol. 82(2), pages 99-111, November.
  32. Avner Shaked & John Sutton, 1982. "Relaxing Price Competition Through Product Differentiation," Review of Economic Studies, Oxford University Press, vol. 49(1), pages 3-13.
  33. Julien Martin, 2009. "Spatial Price Discrimination in International Markets," Working Papers 2009-21, CEPII research center.
  34. Lionel Fontagné & Guillaume Gaulier & Soledad Zignago, 2008. "Specialization across varieties and North-South competition," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00270494, HAL.
  35. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
  36. Pula, Gabor & Santabárbara, Daniel, 2011. "Is China climbing up the quality ladder? Estimating cross country differences in product quality using Eurostat's COMEXT trade database," Working Paper Series 1310, European Central Bank.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:ulp:sbbeta:2011-21. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.