 Quality and gravity in international tradeLisandra Flach and Florian Unger Journal of International Economics, 2022, vol. 137, issue C Abstract: This paper introduces endogenous quality innovations in a multi-country model with heterogeneous firms. We show that quality investments lead to an additional margin of adjustment in the gravity equation. In industries with a high scope for quality differentiation, the elasticity of bilateral exports with respect to fixed costs is lower due to adjustments at the extensive margin, whereas the elasticity with respect to variable costs remains unaffected. We find robust and consistent evidence for the effect of quality differentiation on the gravity equation, using aggregate trade data and Brazilian firm-level data. We apply our model and evaluate the impact of trade policies that reduce fixed export costs. Our results highlight that trade and welfare effects are substantially lower and become much more dispersed across industries than predicted by heterogeneous firm models without quality differentiation. Keywords: International trade; Heterogeneous firms; Gravity equation; Product quality; Trade costs (search for similar items in EconPapers) Downloads: (external link) Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:eee:inecon:v:137:y:2022:i:c:s0022199622000101 DOI: 10.1016/j.jinteco.2022.103578 Access Statistics for this article Journal of International Economics is currently edited by Gourinchas, Pierre-Olivier and RodrÃguez-Clare, Andrés More articles in Journal of International Economics from Elsevier |
Is your work missing from RePEc? Here is how to contribute.
Questions or problems? Check the EconPapers FAQ or send mail to .
EconPapers is hosted by the
School of Business at Örebro University.