Increasing returns, product quality and international trade

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

9 Citations (Scopus)

Abstract

This paper examines the roles of quality and increasing returns in trade. It implies that there is intense intra-industry trade among economies with similar levels of per capita income, which increases both the quality and the quantity of consumption. However, there may be no trade in manufactured goods between rich and poor countries because of the disparity in their optimal qualities of consumption and the high complementarity of the qualities of intermediate goods in production. Thus, it helps explain the observed trade patterns. Moreover, the model shows that a smaller country is more likely to engage in international trade.
Original languageEnglish
Pages (from-to)151-169
Number of pages19
JournalEconomica
Volume72
Issue number285
DOIs
Publication statusPublished - 1 Jan 2005

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International trade
Product quality
Increasing returns
Small countries
Trade patterns
Intermediate goods
Per capita income
Intra-industry trade
Complementarity

Cite this

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Increasing returns, product quality and international trade. / FAN, Chengze, Simon.

In: Economica, Vol. 72, No. 285, 01.01.2005, p. 151-169.

Research output: Journal PublicationsJournal Article (refereed)Researchpeer-review

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AB - This paper examines the roles of quality and increasing returns in trade. It implies that there is intense intra-industry trade among economies with similar levels of per capita income, which increases both the quality and the quantity of consumption. However, there may be no trade in manufactured goods between rich and poor countries because of the disparity in their optimal qualities of consumption and the high complementarity of the qualities of intermediate goods in production. Thus, it helps explain the observed trade patterns. Moreover, the model shows that a smaller country is more likely to engage in international trade.

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