Income Distribution, Product Quality, and International Trade

Pablo Fajgelbaum (), Gene M. Grossman and Elhanan Helpman

Journal of Political Economy, 2011, vol. 119, issue 4, 721 - 765

Abstract: We develop a framework for studying trade in horizontally and vertically differentiated products. In our model, consumers with heterogeneous incomes and tastes purchase a homogeneous good and make a discrete choice of quality and variety of a differentiated product. The distribution of preferences generates a nested-logit demand structure such that the fraction of consumers who buy a higher-quality product rises with income. The model features a home-market effect that helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade and trade policy for different income groups in an economy.

Date: 2011
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Related works:
Working Paper: Income Distribution, Product Quality, and International Trade (2011)
Working Paper: Income Distribution, Product Quality, and International Trade (2011)
Working Paper: Income distribution, product quality, and international trade (2011)
Working Paper: Income Distribution, Product Quality, and International Trade (2009)
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