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Preferences and the home bias in trade

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  • Morey, Mitchell

Abstract

Why is there less observed trade than is predicted by neoclassical trade models? A home bias in consumption due to preferences can partially explain this. Using data from a randomly assigned auction mechanism and survey conducted in Madagascar, respondents' willingness to pay for rice of varying quality and origin is investigated. By imposing a novel structure on traditional valuation collection methods, one finds that consumers will pay approximately 8% more for home-grown rice. The key result is that consumers place greater value on an item produced in their own country without any tangible reason to do so other than the product's origin. This preference-based explanation is one piece of the mosaic of factors that cause disproportionate consumption of domestically produced goods. This paper provides concrete evidence in favor of structuring trade models to allow for an explicit home bias in preferences.

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  • Morey, Mitchell, 2016. "Preferences and the home bias in trade," Journal of Development Economics, Elsevier, vol. 121(C), pages 24-37.
    • Handle: RePEc:eee:deveco:v:121:y:2016:i:c:p:24-37
    DOI: 10.1016/j.jdeveco.2016.01.007
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    7. Tongzhe Li & Kent D. Messer & Alisher Mamadzhanov & Jill J. McCluskey, 2020. "Preferences for local food: Tourists versus local residents," Canadian Journal of Agricultural Economics/Revue canadienne d'agroeconomie, Canadian Agricultural Economics Society/Societe canadienne d'agroeconomie, vol. 68(4), pages 429-444, December.
    8. Jason Winfree, 2024. "Food Origin Labeling and “Promoting Competition”," Review of Industrial Organization, Springer;The Industrial Organization Society, vol. 64(2), pages 267-287, March.
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    10. Alexander Osharin & Valery Verbus, 2018. "Heterogeneity of consumer preferences and trade patterns in a monopolistically competitive setting," Journal of Economics, Springer, vol. 125(3), pages 211-237, November.
    11. Demont, Matty & Fiamohe, Rose & Kinkpé, A. Thierry, 2017. "Comparative Advantage in Demand and the Development of Rice Value Chains in West Africa," World Development, Elsevier, vol. 96(C), pages 578-590.
    12. Elina Bryngemark & Patrik Söderholm, 2022. "Green industrial policies and domestic production of biofuels: an econometric analysis of OECD countries," Environmental Economics and Policy Studies, Springer;Society for Environmental Economics and Policy Studies - SEEPS, vol. 24(2), pages 225-261, April.
    13. Jean Gabszewicz & Ornella Tarola & Skerdilajda Zanaj, 2019. "Consumption home bias and ethnocentrism: an international duopoly," DEM Discussion Paper Series 19-13, Department of Economics at the University of Luxembourg.
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    15. Franco, Sebastian & Frohm, Erik, 2018. "Reduced "Border Effects", FTAs and International Trade," Working Paper Series 356, Sveriges Riksbank (Central Bank of Sweden).

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