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World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity

Author

Listed:
  • Cristiana

    (European University Institute)

  • Teodora Borota

    (Uppsala University)

Abstract
This paper analyzes the role of product quality and labor efficiency in shaping the trade patterns and trade intensities within and across two groups of countries, the developed and richer North and the developing South. Recent empirical literature identifies a positive relation between income per capita and both export and import prices, and also the import prices conditional on exporter. Instead of relying on specific demand side mechanisms such as non-homothetic preferences, we focus on the North-South differences in technology in a four country North-South trade model with two dimensions of firm het- erogeneity. Differences in firms’ product qualities and cost efficiencies result in a price distribution generating different consumption bundles and the observed export and import prices across rich and poor countries. Furthermore, the resulting total expenditure allocation across quality shows that the North (South) spends a larger share of its income on high (low) quality even with the same homothetic preferences across regions.

Suggested Citation

  • Cristiana & Teodora Borota, 2011. "World Trade Patterns and Prices: The Role of Productivity and Quality Heterogeneity," Working papers 19, National Bank of Serbia.
    • Handle: RePEc:nsb:wppnbs:19
    as

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    File URL: https://www.nbs.rs/documents/publikacije/strucni-radovi/2011_19_TB_e.pdf
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    References listed on IDEAS

    as
    1. Richard Baldwin & James Harrigan, 2011. "Zeros, Quality, and Space: Trade Theory and Trade Evidence," American Economic Journal: Microeconomics, American Economic Association, vol. 3(2), pages 60-88, May.
    2. Huergo, Elena & Jaumandreu, Jordi, 2004. "Firms' age, process innovation and productivity growth," International Journal of Industrial Organization, Elsevier, vol. 22(4), pages 541-559, April.
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    4. Krugman, Paul, 1979. "A Model of Innovation, Technology Transfer, and the World Distribution of Income," Journal of Political Economy, University of Chicago Press, vol. 87(2), pages 253-266, April.
    5. Romer, Paul M, 1990. "Endogenous Technological Change," Journal of Political Economy, University of Chicago Press, vol. 98(5), pages 71-102, October.
    6. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    7. Robert E. Hall & Charles I. Jones, 1999. "Why do Some Countries Produce So Much More Output Per Worker than Others?," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 114(1), pages 83-116.
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    Full references (including those not matched with items on IDEAS)

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    More about this item

    Keywords

    International trade patterns; North-South trade; import and export prices; heterogeneous firms; product quality;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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