Cross-Country Heterogeneous Response to Competition: Theory and Evidence from Trade Data

90 Pages Posted: 17 Jun 2019 Last revised: 30 Nov 2023

See all articles by Hamed Atrianfar

Hamed Atrianfar

Pennsylvania State University

Hamid Firooz

Department of Economics, University of Rochester

Date Written: July 10, 2019

Abstract

We document that in response to intensified competition from China in the U.S., poor countries reduce their export prices relative to rich countries, consistent with conventional wisdom. Interestingly, however, the opposite is true for export quantities. To reconcile these facts, we develop and estimate a general equilibrium model of trade featuring (i) crosscountry heterogeneity in the ability to produce high-quality goods and (ii) a two-dimensional Bertrand competition on price and quality. Our model explains the empirical facts by showing that rich countries have a comparative advantage in quality upgrading, whereas a nested model without quality cannot do so.

Keywords: F12, F14, F15, F61 International trade, product market competition, quality, heterogeneous response, China

JEL Classification: F12, F14, F15, F61.

Suggested Citation

Atrianfar, Hamed and Firooz, Hamid, Cross-Country Heterogeneous Response to Competition: Theory and Evidence from Trade Data (July 10, 2019). Available at SSRN: https://ssrn.com/abstract=3401094 or http://dx.doi.org/10.2139/ssrn.3401094

Hamed Atrianfar

Pennsylvania State University ( email )

University Park
State College, PA 16802
United States

Hamid Firooz (Contact Author)

Department of Economics, University of Rochester ( email )

Department of Economics
227 Harkness Hall
Rochester, NY 14627
United States

HOME PAGE: http://https://sites.google.com/view/hamidfirooz/home

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