ECONOMIC DEVELOPMENT AND TRADE OF QUALITY DIFFERENTIATED GOODS
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In this paper, we investigate the impact of economic development on international trade from a theoretical perspective, which considers qualitydifferentiated products and preference diversity for quality. We model two trading partners, and evaluate the effects of per capita income and technology on trade volume and intra-industry trade. We show that the volume of trade and the share of intra-industry trade increases as per capita income increases. Furthermore, we also demonstrate that the volume of trade is proportional to the level of technology, and that the intra-industry trade share increases as the technology in the two countries become similar. This theoretical model may explain why trade volume and intra-industry trade tend to be higher in rich countries than in poor countries.
Abstract
In this paper, we investigate the impact of economic development on international trade from a theoretical perspective, which considers qualitydifferentiated products and preference diversity for quality. We model two trading partners, and evaluate the effects of per capita income and technology on trade volume and intra-industry trade. We show that the volume of trade and the share of intra-industry trade increases as per capita income increases. Furthermore, we also demonstrate that the volume of trade is proportional to the level of technology, and that the intra-industry trade share increases as the technology in the two countries become similar. This theoretical model may explain why trade volume and intra-industry trade tend to be higher in rich countries than in poor countries.
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