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Autor:innen: 
Erscheinungsjahr: 
2025
Schriftenreihe/Nr.: 
CESifo Working Paper No. 11906
Verlag: 
CESifo GmbH, Munich
Zusammenfassung: 
This paper studies how foreign demand affects product quality specialization in international trade. In a model with non-homothetic CES preferences, firms choose quality levels based on global demand conditions, and countries with better access to high-income markets host more high-end producers. As a result, they export relatively more to rich destinations, where demand for quality is stronger. Using bilateral product-level trade data, I test this prediction by examining whether countries with higher "foreign market potential"– a trade-cost-weighted measure of access to rich consumers – export disproportionately more to higher-income destinations. A 10 percent increase in market potential raises the income elasticity of exports by 2.7 percentage points – three times the effect of domestic income. The findings highlight the role of economic integration across development levels in shaping specialization patterns.
Schlagwörter: 
market access
home market effects
non-homothetic preferences
quality
JEL: 
F14
R12
O19
Dokumentart: 
Working Paper
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