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Income distribution, product quality, and international trade, Volume 1
Author:Fajgelbaum, Pablo; Grossman, Gene M.; Helpman, Elhanan; Country:World;
Date Stored:2011/10/13Document Date:2011/10/01
Document Type:Policy Research Working PaperSubTopics:Economic Theory & Research; Transport and Trade Logistics; Transport Economics Policy & Planning; Common Carriers Industry; Markets and Market Access
Language:EnglishRegion:The World Region
Report Number:WPS5843Collection Title:Policy Research working paper ; no. WPS 5843
Volume No:1  

Summary: 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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