with Jonathan Eaton

We introduce quality differentiation and an extensive margin of products into a general equilibrium model of international trade with monopolistic competition. Both the quality and the quantity of a product play a role in its contribution both to consumption and to production. The framework allows bilateral trade to vary at the extensive and intensive margins and the intensive margin of trade to vary at the quantity and unit-value margins. We estimate the parameters of the model using bilateral data on trade flows and on unit values in trade. The model captures (i) the well-documented increasing relation between unit values and both importer and exporter per capita income, (ii) the rise in unit values with distance, and (iii) how the extensive margin rises with importer and exporter size. But, unlike other contributions to the literature confronting these margins in international trade, our framework delivers a standard gravity formulation for trade flows and standard measures of the gains from trade apply

Register here to receive an email with a Zoom link to the seminar.