Quality and Trade
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NBER Working Paper No. 3622
Issued in February 1991
NBER Program(s): ITI IFM
We present a model of trade in which similar countries trade more with each other than very different countries. The reason is that high human capital countries have a comparative advantage at producing high quality goods, but are also rich enough to want to consume high quality. As a result, countries choose trading partners at a similar level of development, who produce similar quality products. The model helps account for the observed trade patterns, and sheds light on international income comparisons. It also helps explain recent concerns of Eastern European countries that they have "nothing to sell" to the West.
Published: Journal of Developmental Economics, June 1997, Vol. 53(1): 1-15.
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