Publication: Income Distribution, Product Quality, and International Trade
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2011-10-01
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2012-03-19
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The authors develop a framework for studying trade in horizontally and vertically differentiated products. In their model, consumers with heterogeneous incomes and tastes purchase a homogeneous good and make a discrete choice of quality and variety of a differentiated product. The distribution of preferences generates a nested-logit demand structure such that the fraction of consumers who buy a higher-quality product rises with income. The model features a home-market effect that helps to explain why richer countries export higher-quality goods. It provides a tractable tool for studying the welfare consequences of trade and trade policy for different income groups in an economy.
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“Fajgelbaum, Pablo; Grossman, Gene M.; Helpman, Elhanan. 2011. Income Distribution, Product Quality, and International Trade. Policy Research working paper ; no. WPS 5843. © World Bank. http://hdl.handle.net/10986/3609 License: CC BY 3.0 IGO.”
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