Quality and Trade

Kevin M. Murphy and Andrei Shleifer

No 3622, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: 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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Related works:
Working Paper: Quality and Trade (1991)
Journal Article: Quality and trade (1997)
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