Income Distribution, Product Quality, and International Trade
43 Pages Posted: 20 Apr 2016
Date Written: October 1, 2011
The authors develop a framework for studying trade in horizontally and vertically differentiated products. In their 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.
Keywords: Economic Theory & Research, Transport Economics Policy & Planning, Markets and Market Access, Transport and Trade Logistics, Common Carriers Industry
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