Non-homothetic preferences, parallel imports and the extensive margin of international trade

Zweimüller, Josef, Reto Foellmi and Christian Hepenstrick
Authors registered in the RePEc Author Service: Josef Zweimüller ()

No 7939, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: We study international trade in a model where consumers have non-homothetic preferences and where household income restricts the extensive margin of consumption. In equilibrium, monopolistic producers set high (low) prices in rich (poor) countries but a threat of parallel trade restricts the scope of price discrimination between countries. The threat of parallel trade allows differences in per capita incomes to have a strong impact on the extensive margin of trade, whereas differences in population sizes have a weaker effect. We also show that the welfare gains from trade liberalization are biased towards rich countries. We extend our model to more than two countries; to unequal incomes within countries; and to more general specifications of non-homothetic preferences. Our basic results are robust to these extensions.

Keywords: Extensive margin of trade; Heterogenous markups; Non-homothetic preferences; Parallel imports (search for similar items in EconPapers)
JEL-codes: F10 F12 F19 (search for similar items in EconPapers)
Date: 2010-08
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (13)

Downloads: (external link)
https://cepr.org/publications/DP7939 (application/pdf)
CEPR Discussion Papers are free to download for our researchers, subscribers and members. If you fall into one of these categories but have trouble downloading our papers, please contact us at subscribers@cepr.org

Related works:
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2011)
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2010)
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:cpr:ceprdp:7939

Ordering information: This working paper can be ordered from
https://cepr.org/publications/DP7939

Access Statistics for this paper

More papers in CEPR Discussion Papers from C.E.P.R. Discussion Papers Centre for Economic Policy Research, 33 Great Sutton Street, London EC1V 0DX.
Bibliographic data for series maintained by ().