Income Distribution, Product Quality, and International Trade

Pablo Fajgelbaum (), Gene Grossman and Elhanan Helpman

No 275739, Foerder Institute for Economic Research Working Papers from Tel-Aviv University > Foerder Institute for Economic Research

Abstract: We develop a framework for studying trade in vertically and horizontally differentiated products. In our model, consumers with heterogeneous incomes and tastes purchase a homogeneous good as well as making a discrete choice of quality and variety of a differentiated product. The distribution of preferences in the population generates a nested logit demand structure. These demands are such that the fraction of consumers who buy a higher-quality product rises with income. We use the model to study the pattern of trade between countries that differ in size and income distributions but are otherwise identical. Trade - which is driven primarily by demand factors - derives from 'home market effects' in the presence of transport costs. The model helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade, transport costs, and trade policy for different income groups in an economy.

Keywords: Financial Economics; International Relations/Trade (search for similar items in EconPapers)
Pages: 43
Date: 2011-01
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Citations: View citations in EconPapers (327)

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Related works:
Journal Article: 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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Persistent link: https://EconPapers.repec.org/RePEc:ags:isfiwp:275739

DOI: 10.22004/ag.econ.275739

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