Income Effects and Vertical Differentiation in International Trade

Pierre Picard and Alessandro Tampieri

DEM Discussion Paper Series from Department of Economics at the University of Luxembourg

Abstract: We analyse a trade model with non-homothetic preferences and different quality ver- sions of each product. Income effects drive the quality composition of consumption, pro- duction and trade flows. We show that a rise in local population fosters local asymmetric specialization in high-quality production and exports while it harms low income groups. By contrast, an increase in local productivity may generate specialization in high quality production, which in turn may trigger an immiserizing growth process. Weaker compa- rative advantages induce firm to move and make a local productivity improvement more likely to increase production of higher quality goods everywhere.

Keywords: Heterogeneous firms; 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: 2016
New Economics Papers: this item is included in nep-ind and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Related works:
Working Paper: Income Effects and Vertical Differentiation in International Trade (2016)
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Persistent link: https://EconPapers.repec.org/RePEc:luc:wpaper:16-05

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