Work

Non-homothetic preferences, parallel imports and the extensive margin of international trade

Year: 2010

Type: book

Abstract: We study international trade in a model where consumers have non-homothetic preferences and where household income restricts the extensive margin of consumption. In equilibrium, monopolistic producers set high (low) prices in rich (poor) countries but a threat of parallel trade restricts the scope of price discrimination between countries. The threat of parallel trade allows differences in per capita incomes to have a strong impact on the extensive margin of trade, whereas differences in population sizes have a weaker effect. We also show that the welfare gains from trade liberalization are biased towards rich countries. We extend our model to more than two countries; to unequal incomes within countries; and to more general specifications of non-homothetic preferences. Our basic results are robust to these extensions.

Source: Alexandria (UniSG) (University of St.Gallen)

DOI: 10.7892/boris.145730

Authors: Föllmi, Reto, Hepenstrick, Christian, Zweimüller, Josef

Institutions: University of St.Gallen, University of Zurich, Ifo Institute for Economic Research, IZA - Institute of Labor Economics, Centre for Economic Policy Research

Language: English

Topic: Global trade and economics

Subfield: General Economics, Econometrics and Finance

Field: Economics, Econometrics and Finance

Domain: Social Sciences

SDG: Reduced inequalities

Open Access status: green

OpenAlex ID: W3125069869