Income Distribution, Product Quality, and International Trade
We develop a framework for studying trade in horizontally and vertically differentiated products. In our model, consumers with heterogeneous incomes and tastes purchase a homogeneous good and make a discrete choice of quality and variety of a differentiated product. The distribution of preferences generates a nested-logit demand structure such that the fraction of consumers who buy a higher-quality product rises with income. The model features a home-market effect that helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade and trade policy for different income groups in an economy.
Year of publication: |
2011
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Authors: | Fajgelbaum, Pablo ; Grossman, Gene M. ; Helpman, Elhanan |
Published in: |
Journal of Political Economy. - University of Chicago Press. - Vol. 119.2011, 4, p. 721-721
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Publisher: |
University of Chicago Press |
Saved in:
Online Resource
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