Consumer Taste in Trade

Abstract

This paper documents the importance of consumer taste for the food industry using firm-product level customs data by destination country. We identify consuer taste through the use of a control function approach and estimate it jointly with other demand parameters using a flexible demand specification. We find that, on average, consumer taste explains as much of the variation in export revenue as marginal costs. The contribution of consumer taste to export revenue variation, ranges between 2% to 30% depending on the product category in the food industry. Our results also show that consumer taste decreases in distance but this relationship is non-monotonic.

Keywords: consumer taste, exports, firm-product, Food, productivity, Quality

JEL Classification: F12, F14