Non-homothetic Preferences, Parallel Imports and the Extensive Margin of International Trade
Type
working paper
Date Issued
2011
Author(s)
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 specfications of non-homothetic preferences. Our basic
results are robust to these extensions.
results are robust to these extensions.
Language
English
HSG Classification
contribution to scientific community
Refereed
No
Publisher
SIAW-HSG
Subject(s)
Eprints ID
187943
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Name
FoellmiHepenstrickZweimueller2011.pdf
Size
304.58 KB
Format
Adobe PDF
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