Foreign Market Access’ Role for Export Quality

Dorothee Hillrichs ()

No 11906, CESifo Working Paper Series from CESifo

Abstract: This paper studies how foreign demand affects product quality specialization in international trade. In a model with non-homothetic CES preferences, firms choose quality levels based on global demand conditions, and countries with better access to high-income markets host more high-end producers. As a result, they export relatively more to rich destinations, where demand for quality is stronger. Using bilateral product-level trade data, I test this prediction by examining whether countries with higher “foreign market potential”— a trade-cost-weighted measure of access to rich consumers — export disproportionately more to higher-income destinations. A 10 percent increase in market potential raises the income elasticity of exports by 2.7 percentage points — three times the effect of domestic income. The findings highlight the role of economic integration across development levels in shaping specialization patterns.

Keywords: market access; home market effects; non-homothetic preferences; quality (search for similar items in EconPapers)
JEL-codes: F14 O19 R12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_11906

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