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Quantifying a vertical differentiation trade model

Author

Listed:
  • Evgenii Monastyrenko

    (DEM, Université du Luxembourg)

  • Pierre M. Picard

    (DEM, Université du Luxembourg)

Abstract

We build a trade model that simultaneously embeds vertical product differentiation, within- country heterogeneous income, heterogeneous goods, and many countries. Under some spec- ifications of costs and preferences, we can establish the existence of the general equilibrium and obtain a very tractable quantification model. We estimate all of the model parameters by applying the model properties on OECD countries. We finally quantify the effect of trade costs and economic shocks – like Brexit – on each country’s share of high-quality goods.

Suggested Citation

  • Evgenii Monastyrenko & Pierre M. Picard, 2023. "Quantifying a vertical differentiation trade model," DEM Discussion Paper Series 23-13, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:23-13
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    File URL: https://hdl.handle.net/10993/58762
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    References listed on IDEAS

    as
    1. Krugman, Paul R, 1993. "On the Relationship between Trade Theory and Location Theory," Review of International Economics, Wiley Blackwell, vol. 1(2), pages 110-122, June.
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    More about this item

    Keywords

    vertical differentiation; general equilibrium; international trade.;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • L11 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Production, Pricing, and Market Structure; Size Distribution of Firms
    • L15 - Industrial Organization - - Market Structure, Firm Strategy, and Market Performance - - - Information and Product Quality

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