Non-homothetic preferences, parallel imports and the extensive margin of international trade

Reto Foellmi, Christian Hepenstrick and Josef Zweim Ller
Authors registered in the RePEc Author Service: Josef Zweimüller (josef.zweimueller@econ.uzh.ch)

Diskussionsschriften from Universitaet Bern, Departement Volkswirtschaft

Abstract: We study international trade in a model where consumers have non-homothetic preferences and where household income restricts the extensive margin of consumption. In equilibrium, monopolistic producers set high (low) prices in rich (poor) countries but a threat of parallel trade restricts the scope of price discrimination between countries. The threat of parallel trade allows differences in per capita incomes to have a strong impact on the extensive margin of trade, whereas differences in population sizes have a weaker effect. We also show that the welfare gains from trade liberalization are biased towards rich countries. We extend our model to more than two countries; to unequal incomes within countries; and to more general specifications of non-homothetic preferences. Our basic results are robust to these extensions.

Keywords: Heterogenous markups; non-homothetic preferences; parallel imports; extensive margin of trade (search for similar items in EconPapers)
JEL-codes: F10 F12 F19 (search for similar items in EconPapers)
Date: 2010-07
New Economics Papers: this item is included in nep-int
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Citations: View citations in EconPapers (12)

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Related works:
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2011)
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2010)
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2010)
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