Vertical differentiation and trade among symmetric countries

Pierre Picard and Alessandro Tampieri

Economic Theory, 2021, vol. 71, issue 4, No 3, 1319-1355

Abstract: Abstract We study a trade model with vertical product differentiation with many goods that are heterogeneous in cost and quality and produced in two quality versions. We discuss the composition of high- and low-quality goods in the workers’ consumption baskets in countries between comparable countries. We show that a larger country population fosters its specialization in high-quality production while a higher country productivity leads to specialization in high quality production for all countries. Smaller trade costs foster specialization in high quality exports. We then discuss the effect of population heterogeneity on the consumption baskets and country specialization. Most of those results agree with existing empirical findings.

Keywords: Vertical differentiation; Horizontal differentiation; Trade; Income heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F16 L11 L15 (search for similar items in EconPapers)
Date: 2021
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Citations: View citations in EconPapers (1)

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DOI: 10.1007/s00199-020-01295-9

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