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Re-estimating International Elasticity of Substitution - A Preliminary Study of Quality Effect on Trade

Author

Listed:
  • Thannaletchimy Thanagopal
  • Pierre Le Mouel
  • Arnaud Fourgeyrollas
  • Paul Zagamé

Abstract

Trade in quality has become a dominant economic phenomenon in Europe since the 1990s (Fontagné, Freudenberg, Peridy, 1998). Increasingly, European countries trade in similar products which vary in quality and variety, making quality an important determinant of trade within these countries. This paper, thus, attempts to quantify the effect of quality in trade within Europe. In particular, the study attempts to re-estimate import elasticities of substitution between the same good coming from different origins while accounting for the varying quality of the product. These estimates are then used to quantify the impact of quality on trade within these countries. The paper concludes that quality is important for trade, especially for differentiated goods rather than homogeneous ones.

Suggested Citation

  • Thannaletchimy Thanagopal & Pierre Le Mouel & Arnaud Fourgeyrollas & Paul Zagamé, 2014. "Re-estimating International Elasticity of Substitution - A Preliminary Study of Quality Effect on Trade," International Journal of Economic Sciences, Prague University of Economics and Business, vol. 2014(1), pages 64-77.
    • Handle: RePEc:prg:jnljes:v:2014:y:2014:i:1:id:8:p:64-77
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    References listed on IDEAS

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    1. Aiginger, Karl, 1997. "The Use of Unit Values to Discriminate between Price and Quality Competition," Cambridge Journal of Economics, Cambridge Political Economy Society, vol. 21(5), pages 571-592, September.
    2. Daron Acemoglu & Jaume Ventura, 2002. "The World Income Distribution," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 117(2), pages 659-694.
    3. Anderton, Bob, 1999. "Innovation, Product Quality, Variety, and Trade Performance: An Empirical Analysis of Germany and the UK," Oxford Economic Papers, Oxford University Press, vol. 51(1), pages 152-167, January.
    4. James E. Anderson & Douglas Marcouiller, 1999. "Trade, Insecurity, and Home Bias: An Empirical Investigation," NBER Working Papers 7000, National Bureau of Economic Research, Inc.
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    Cited by:

    1. Thanagopal, Dr. Thannaletchimy & Housset, Félix, 2017. "A quality-adjusted AIDS model in the study of French imports," International Economics, Elsevier, vol. 151(C), pages 85-99.

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