Geography of Export Prices and Importer-Exporter Income Differences

36 Pages Posted: 7 Feb 2013

See all articles by Volodymyr Lugovskyy

Volodymyr Lugovskyy

Indiana University Bloomington - Department of Economics

Alexandre Skiba

University of Wyoming - College of Business - Department of Economics and Finance

Date Written: February 6, 2013

Abstract

We develop a model of endogenous quality choice and trade that combines non-iceberg trade costs and non-homothetic preferences to capture the effect of importer-exporter income differences on geographic variation in quality and export prices. The differences in income substantially alter the effect of trade costs on quality. The incentive to trade high quality goods given high trade costs (the Alchian-Allen effect) is tempered by the increased remoteness from rich importers demanding high quality goods. The estimated effects of distance and contiguity in a sample of product-level imports to nine Latin American countries and the United States support our theory.

Keywords: quality, relative income, economic geography, Alchian-Allen effect, Linder, distance

JEL Classification: F1

Suggested Citation

Lugovskyy, Volodymyr and Skiba, Alexandre, Geography of Export Prices and Importer-Exporter Income Differences (February 6, 2013). Available at SSRN: https://ssrn.com/abstract=2213005 or http://dx.doi.org/10.2139/ssrn.2213005

Volodymyr Lugovskyy (Contact Author)

Indiana University Bloomington - Department of Economics ( email )

Wylie Hall
Bloomington, IN 47405-6620
United States

Alexandre Skiba

University of Wyoming - College of Business - Department of Economics and Finance ( email )

P.O. Box 3985
Laramie, WY 82071-3985
United States

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