Product quality,firm heterogeneity and trade liberalization |
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Authors: | Antoine Gervais |
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Affiliation: | 1. Department of Economics, University of Notre Dame, Notre Dame, IN 46556, USAagervais@nd.edu |
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Abstract: | This paper develops a framework for studying the general equilibrium effects of endogenous quality upgrading, a new margin of trade, on the welfare impact of trade liberalization. The theoretical model introduces product quality differentiation amongst heterogeneous firms and focuses on supply-side determinants of international trade. Among other results, in general equilibrium, trade liberalization decreases the share of high-quality varieties in exports and the average productivity of exporters. These changes affect average export price in opposite ways. Nevertheless, trade liberalization in the quality-extended model increases consumers’ welfare by more than in the benchmark model. |
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Keywords: | product quality firm heterogeneity trade liberalization welfare |
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