Income Distribution, Product Quality, and International Trade

Pablo D. Fajgelbaum, Gene Grossman () and Elhanan Helpman

No 15329, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We develop a framework for studying trade in horizontally and vertically differentiated products. In our model, consumers have heterogeneous incomes and heterogeneous tastes. They purchase a homogeneous good as well as making a discrete choice of quality and brand of a differentiated product. The distribution of preferences in the population generates a nested logit demand structure. These demands are such that the fraction of consumers who buy a higher-quality product rises with income. We use the model to study the pattern of trade between countries that differ in size and income distributions but are otherwise identical. Trade---which is driven primarily by demand factors---derives from "home market effects" in the presence of transport costs. When these costs are sufficiently small, goods of a given quality are produced in a single country. The model provides a tractable framework for studying the welfare consequences of trade, transport costs, and trade policy for different income groups in an economy.

JEL-codes: F12 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2009-09
Note: ITI
View list of references View citations in EconPapers

Downloads: (external link)
http://www.nber.org/papers/w15329.pdf (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at http://www.nber.org/wwphelp.html.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: http://EconPapers.repec.org/RePEc:nbr:nberwo:15329

Ordering information: This working paper can be ordered from
http://www.nber.org/papers/w15329
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc
Address: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.
Contact information at EDIRC.
Series data maintained by ().