Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/82594
Authors: 
Benedetti Fasil, Cristiana
Borota, Teodora
Year of Publication: 
2010
Series/Report no.: 
Working Paper, Department of Economics, Uppsala University 2010:7
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. Taking prices as a proxy for quality, recent empirical literature identifies a positive relation between income per capita and both export and import prices, suggesting that rich countries trade goods of relatively higher quality. Instead of relying on specific demand side mechanisms such as non-homothetic preferences, we focus on the North-South differences in technology. We employ a four country North-South trade model with two dimensions of firm heterogeneity. 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.
Subjects: 
international trade patterns
North-South trade
import and export prices
heterogeneous firms
product quality
JEL: 
F10
F12
F14
L11
L15
Persistent Identifier of the first edition: 
Document Type: 
Working Paper

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