Trade Performances, Product Quality Perceptions, and the Estimation of Trade Price Elasticities

Traditional trade models ignoring the dimension of product quality generally lead to excessively low trade price elasticities. This paper estimates import market share equations including a quality image proxy derived from survey data. The estimation results, based on panel data for the four main EU member states, confirm the part played by product quality perceptions in the estimation of trade price elasticities, at least for highly differentiated products. Introducing the quality image proxy into the models leads to a significant increase in the price elasticities, which thus become superior to unity, in conformity with theoretical elasticities of substitution.