Quality Ladders in a Ricardian Model of Trade With Nonhomothetic Preferences

Jaimovich, Esteban; Merella, Vincenzo

doi:10.1111/j.1542-4774.2012.01077.x

Cited by 22 publications

(16 citation statements)

References 29 publications

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“…In contrast to these papers, in our framework, quality starts to matter only beyond some income threshold, such that not all consumers necessarily buy from the set of differentiated goods. One exception of a paper that considers a quality consumption threshold refers to Jaimovich and Merella (). However, different from our framework, Jaimovich and Merella () model a threshold directly in the utility function, such that quality increases utility only beyond a certain level of income.…”

Section: Related Literaturementioning

confidence: 99%

“…One exception of a paper that considers a quality consumption threshold refers to Jaimovich and Merella (). However, different from our framework, Jaimovich and Merella () model a threshold directly in the utility function, such that quality increases utility only beyond a certain level of income. Using a Ricardian model with non‐homothetic preferences, they show that trade may be a source of income divergence when non‐homothetic preferences and quality ladders are jointly taken into account.…”

Section: Related Literaturementioning

confidence: 99%

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Income inequality and export prices across countries

Flach¹,

Janeba

2017

Canadian J of Economics

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This paper provides theory and evidence on the links between income inequality within a destination country and the patterns of trade and export prices. The theoretical framework relates income inequality to product quality and prices using a simple demand composition effect. The model predicts that a more unequal income distribution in a destination country leads to higher average prices, though the effect is nonlinear and disappears for rich enough countries. The predictions are tested using detailed firm‐level data. Controlling for income per capita, prices are systematically higher in more unequal destinations, and the strength of this effect depends on income per capita. Results are particularly important for middle‐income countries and hold only for differentiated goods, and in particular for products with a high degree of vertical differentiation.

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Section: Related Literaturementioning

confidence: 99%

Section: Related Literaturementioning

confidence: 99%

Income inequality and export prices across countries

Flach¹,

Janeba

2017

Canadian J of Economics

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“…The evidence here also points towards the presence of nonhomothetic preferences along the quality dimension, showing that producers sell higher quality versions of their output to richer importers. 2 These empirical …ndings have motivated a number of models that yield trade patterns where richer importers buy high-quality versions of goods, while exporters di¤erentiate the quality of their output by income at destination [Hallak (2010), Fajgelbaum, Grossman and Helpman (2011), Jaimovich and Merella (2012)]. Yet, this literature has approached the determinants of countries' sectoral specialisation as a phenomenon that is independent of the process of quality upgrading resulting from higher consumer incomes.…”

Section: Introductionmentioning

confidence: 99%

Love for quality, comparative advantage, and trade

Jaimovich

Merella

2015

Journal of International Economics

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We propose a Ricardian trade model with horizontal and vertical di¤erentiation, where willingness to pay for quality rises with individuals'incomes, and productivity di¤erentials across countries are stronger for high-quality varieties of goods. Our theory predicts that the scope for trade widens and international specialisation intensi…es as incomes grow and wealthier consumers raise the quality of their consumption baskets. This implies that comparative advantages strengthen gradually over the path of development as a by-product of the process of quality upgrading. The evolution of comparative advantages leads to speci…c trade patterns that change over the growth path, by linking richer importers to more specialised exporters.We provide empirical support for this prediction, showing that the share of imports originating from exporters exhibiting a comparative advantage in a speci…c product correlates positively with the importer's GDP per head.

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“…11) for an overview. In the realm of trade and trade policy, our paper relates to noticeable contributions by Matsuyama (2000), Krishna and Yavas (2005), Mitra and Trindade (2005), , Fajgelbaum et al (2011), Fieler (2011 and Jaimovich and Merella (2012). However, none of these papers, nor any other paper that we know of, links nonhomothetic preferences to the analysis of PTA formation.…”

Section: Introductionmentioning

confidence: 98%

Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences

Stibora

Vaal

2015

Rev International Economics

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We study the e¤ects of preferential trade agreements (PTA) in a model where income matters for consumption patterns. We develop a three-country Ricardian trade model in which goods are ranked according to priority and where economies di¤er in their income level. The poorest (richest) country has a comparative advantage in the production of lowest-ranked (highest-ranked) goods, specializing in goods with low (high) income elasticities in demand. The medium rich country specializes in the production of the intermediate-ranked commodities. We …nd that being a nonmember of a PTA leads to a terms of trade deterioration for a poor country, and a terms of trade improvement for the high-income country. Becoming a member of a PTA also does not guarantee welfare gains for the low income country, unless it is so poor that it cannot import the higher-ranked goods that the rich country produces.Keywords: Ricardian trade model; asymmetric demand complementarities; Customs Union; income distribution. JEL classi…cation: F1We would like to thank Willy Spanjers, Peter Skott as well as participants of seminars at Kingston University, the Radboud University Nijmegen, the MWIEG Fall 2005 meeting in Lawrence, Kansas, the 2006 DEGIT XI workshop in Jerusalem, and the 2006 ETSG meeting in Vienna for their useful comments and suggestions. Finally, we thank Marcia Schafgans for her perceptive comments and moral support. All remaining errors are, of course, ours.

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Quality Ladders in a Ricardian Model of Trade With Nonhomothetic Preferences

Cited by 22 publications

References 29 publications

Income inequality and export prices across countries

Income inequality and export prices across countries

Love for quality, comparative advantage, and trade

Does Preferential Trade Benefit Poor Countries? A General Equilibrium Assessment with Nonhomothetic Preferences

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