Re-estimating International Elasticity of Substitution - A Preliminary Study of Quality Effect on Trade

Thannaletchimy Thanagopal, Pierre Le Mouel, Arnaud Fourgeyrollas and Paul Zagamé

International Journal of Economic Sciences, 2014, vol. 2014, issue 1, 64-77

Abstract: Trade in quality has become a dominant economic phenomenon in Europe since the 1990s (Fontagné, Freudenberg, Peridy, 1998). Increasingly, European countries trade in similar products which vary in quality and variety, making quality an important determinant of trade within these countries. This paper, thus, attempts to quantify the effect of quality in trade within Europe. In particular, the study attempts to re-estimate import elasticities of substitution between the same good coming from different origins while accounting for the varying quality of the product. These estimates are then used to quantify the impact of quality on trade within these countries. The paper concludes that quality is important for trade, especially for differentiated goods rather than homogeneous ones.

Keywords: trade; quality; import price elasticity; elasticity of substitution; competitiveness; disaggregated sectoral analysis (search for similar items in EconPapers)
Date: 2014
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