Love for Quality, Comparative Advantage, and Trade

Vincenzo Merella and Esteban Jaimovich

No 244, 2013 Meeting Papers from Society for Economic Dynamics

Abstract: We propose a Ricardian trade model with horizontal and vertical differentiation, where individuals' willingness to pay for quality rises with their income, and productivity differentials across countries are stronger for high-quality goods. Our theory predicts that the scope for trade widens and international specialisation intensifies as incomes grow and wealthier consumers raise the quality of their consumption baskets. This implies that comparative advantages intensify gradually over the path of development as a by-product of the process of quality upgrading. The evolution of comparative advantages leads to specific trade patterns that change over the growth path, by linking richer importers to more specialised exporters. We provide empirical support for this prediction, showing that the share of imports originating from exporters exhibiting a comparative advantage in a specific product correlates positively with the importer's GDP per head.

Date: 2013
New Economics Papers: this item is included in nep-int
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Related works:
Journal Article: Love for quality, comparative advantage, and trade (2015)
Working Paper: Love for Quality, Comparative Advantage, and Trade (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:red:sed013:244

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