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

Reto Föllmi (reto.foellmi@unisg.ch), Christian Hepenstrick and Josef Zweimüller (josef.zweimueller@econ.uzh.ch)
Authors registered in the RePEc Author Service: Reto Foellmi

No 1122, Economics Working Paper Series from University of St. Gallen, School of Economics and Political Science

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: Heterogenous markups; non-homothetic preferences; parallel imports; extensive margin of trade. (search for similar items in EconPapers)
JEL-codes: F10 F12 F19 (search for similar items in EconPapers)
Pages: 43 pages
Date: 2011-05
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (10)

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http://ux-tauri.unisg.ch/RePEc/usg/econwp/EWP-1122.pdf (application/pdf)

Related works:
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)
Working Paper: Non-homothetic preferences, parallel imports and the extensive margin of international trade (2010)
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