Income distribution, product quality, and international trade

Pablo Fajgelbaum, Gene M. Grossman, Elhanan Helpman

Research output: Contribution to journalArticle

132 Scopus citations

Abstract

We develop a framework for studying trade in horizontally and vertically differentiated products. In our 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 structuresuch 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.

Original languageEnglish (US)
Pages (from-to)721-765
Number of pages45
JournalJournal of Political Economy
Volume119
Issue number4
DOIs
StatePublished - Aug 2011
Externally publishedYes

All Science Journal Classification (ASJC) codes

  • Economics and Econometrics

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