Quality heterogeneity and global economic growth
Document Type
Article
Publication Date
6-1-2011
Abstract
This paper develops a fully endogenous, variety-expansion growth model with firm-specific quality heterogeneity, limit pricing, and an endogenous distribution of markups. Firms with high-quality products engage in exporting, firms with intermediate-quality products serve the domestic market, and inefficient firms with low-quality products exit the market. Trade liberalization, measured by a reduction in trade costs or a decline in foreign market entry costs, generates a reallocation of resources from low-quality to high-quality products and exit of inefficient firms. However, it has ambiguous effects on the average global quality level, long-run growth, and welfare. An increase in the rate of population growth or in the intensity of trade-related knowledge spillovers accelerates economic growth. The laissez-faire equilibrium is inefficient, and this leaves room for welfare-improving government intervention. © 2010 Elsevier B.V.
Publication Source (Journal or Book title)
European Economic Review
First Page
595
Last Page
612
Recommended Citation
Dinopoulos, E., & Unel, B. (2011). Quality heterogeneity and global economic growth. European Economic Review, 55 (5), 595-612. https://doi.org/10.1016/j.euroecorev.2010.09.009