Vertical differentiation and trade among symmetric countries

Picard, P. M.;Tampieri, A.
(2020) Economic Theory — Vol. 71, n° 4, p. 1319-1355 (2020)

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  • Picard, P. M.UCLouvain
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  • Tampieri, A.orcid-logoDepartment of Economics, University of Florence, Via delle Pandette 9, Florence, 50127, Italy
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Abstract
We study a trade model with vertical product differentiation with many goods that are heterogeneous in cost and quality and produced in two quality versions. We discuss the composition of high- and low-quality goods in the workers’ consumption baskets in countries between comparable countries. We show that a larger country population fosters its specialization in high-quality production while a higher country productivity leads to specialization in high quality production for all countries. Smaller trade costs foster specialization in high quality exports. We then discuss the effect of population heterogeneity on the consumption baskets and country specialization. Most of those results agree with existing empirical findings.
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Picard, P. M., & Tampieri, A. (2020). Vertical differentiation and trade among symmetric countries. Economic Theory, 71(4), 1319-1355. https://doi.org/10.1007/s00199-020-01295-9 (Original work published 2020)