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Love for quality, comparative advantage, and trade

Jaimovich, E and Merella, V (2015) Love for quality, comparative advantage, and trade Journal of International Economics. (In Press)

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© 2015 Elsevier B.V. We propose a Ricardian trade model with horizontal and vertical differentiation, where willingness to pay for quality rises with income, and productivity differentials across countries are stronger for high-quality varieties of goods. Our theory predicts that the scope for trade widens and international specialisation intensifies 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 specific 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 specific product correlates positively with the importer's GDP per head.

Item Type: Article
Divisions : Faculty of Arts and Social Sciences > School of Economics
Authors :
Date : 9 July 2015
Identification Number : 10.1016/j.jinteco.2015.06.004
Additional Information : © 2015. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Depositing User : Symplectic Elements
Date Deposited : 01 Dec 2015 16:53
Last Modified : 01 Dec 2015 16:53

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