Quality and Trade

31 Pages Posted: 25 May 2006 Last revised: 10 Jun 2007

See all articles by Kevin M. Murphy

Kevin M. Murphy

University of Chicago; National Bureau of Economic Research (NBER)

Andrei Shleifer

Harvard University - Department of Economics; National Bureau of Economic Research (NBER); European Corporate Governance Institute (ECGI)

Date Written: February 1991

Abstract

We present a model of trade in which similar countries trade more with each other than very different countries. The reason is that high human capital countries have a comparative advantage at producing high quality goods, but are also rich enough to want to consume high quality. As a result, countries choose trading partners at a similar level of development, who produce similar quality products. The model helps account for the observed trade patterns, and sheds light on international income comparisons. It also helps explain recent concerns of Eastern European countries that they have "nothing to sell" to the West.

Suggested Citation

Murphy, Kevin M. and Shleifer, Andrei, Quality and Trade (February 1991). NBER Working Paper No. w3622. Available at SSRN: https://ssrn.com/abstract=227429

Kevin M. Murphy (Contact Author)

University of Chicago ( email )

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National Bureau of Economic Research (NBER)

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Andrei Shleifer

Harvard University - Department of Economics ( email )

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HOME PAGE: http://www.economics.harvard.edu/~ashleife/

National Bureau of Economic Research (NBER)

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Cambridge, MA 02138
United States

European Corporate Governance Institute (ECGI)

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Belgium

HOME PAGE: http://www.ecgi.org

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