Quality heterogeneity and global economic growth

Elias Dinopoulos and Bulent Unel ()

European Economic Review, 2011, vol. 55, issue 5, 595-612

Abstract: This paper develops a fully endogenous, variety-expansion growth model with firm-specific quality heterogeneity, limit pricing, and an endogenous distribution of markups. Firms with high-quality products engage in exporting, firms with intermediate-quality products serve the domestic market, and inefficient firms with low-quality products exit the market. Trade liberalization, measured by a reduction in trade costs or a decline in foreign market entry costs, generates a reallocation of resources from low-quality to high-quality products and exit of inefficient firms. However, it has ambiguous effects on the average global quality level, long-run growth, and welfare. An increase in the rate of population growth or in the intensity of trade-related knowledge spillovers accelerates economic growth. The laissez-faire equilibrium is inefficient, and this leaves room for welfare-improving government intervention.

Keywords: International; trade; Economic; growth; Firm; heterogeneity; Product; quality; R&D; Trade; costs; Trade; liberalization (search for similar items in EconPapers)
Date: 2011
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Citations: View citations in EconPapers (35)

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Working Paper: Quality Heterogeneity and Global Economic Growth (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:eecrev:v:55:y:2011:i:5:p:595-612

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