Decomposing Firm-Product Appeal: How Important Is Consumer Taste?
KU LEUVEN - Discussion Paper Series, DPS18.03, February 2018
60 Pages Posted: 12 Mar 2018
There are 2 versions of this paper
Decomposing Firm-Product Appeal: How Important Is Consumer Taste?
Decomposing Firm-Product Appeal: How Important is Consumer Taste?
Date Written: February 9, 2018
Abstract
We develop and structurally estimate a trade model in order to identify the importance of consumer taste for exporters. The model separates taste from quality and productivity (TFPQ) at the firm-product level. Export data by destination countries allow us to identify the level of taste from consumer heterogeneity across destinations. We decompose export revenue into the contribution of taste, quality and costs. We find that taste is very important and explains about 50% of the variation in export revenue. Productivity (TFPQ) differences between firm-products become more prominent than taste in explaining export success only when the cost elasticity of improving quality is high.
Keywords: tastes, quality, productivity, exports, firm-product
JEL Classification: F12, F14
Suggested Citation: Suggested Citation