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This paper analyzes the role of product quality and labor efficiency in shaping the trade patterns and trade intensities within and across two groups of countries, the developed and richer North and the developing South. Taking prices as a proxy for quality, recent empirical literature identifies a positive relation between income per capita and both export and import prices, suggesting that rich countries trade goods of relatively higher quality. Instead of relying on specific demand side mechanisms such as non-homothetic preferences, we focus on the North-South differences in technology. We employ a four country North-South trade model with two dimensions of firm heterogeneity. Differences in firms’ product qualities and cost efficiencies result in a price distribution generating different consumption bundles and the observed export and import prices across rich and poor countries. Furthermore, the resulting total expenditure allocation across quality shows that the North (South) spends a larger share of its income on high (low) quality even with the same homothetic preferences across regions.

Recent evidence on world trade patterns reveals North-South specialization across products of the same industries and product groups but different quality, which is not matched by the predictions o ...

In this paper we propose a novel method for the price-cost markup estimationand study the relationship between export intensity and the markup. We impose much less restrictive identifying assumptions ontechnology and adjustment frictions compared to previous studies anduse Swedishfirm-level inventory data on finished goods of own productionto measure the markup. Furthermore, as we are using data on aquarterly frequency, we are able to provide novel results on the dynamicadjustment of the markup related to changes in export intensity.

In this paper we propose a novel method for the price-cost markup estimation and study the relationship between export intensity and the markup. We impose much less restrictive identifying assumptions on technology and adjustment frictions compared to previous studies and use Swedish firm-level inventory data on finished goods of own production to measure the markup. Furthermore, as we are using data on a quarterly frequency, we are able to provide novel results on the dynamic adjustment of the markup related to changes in export intensity.