Working Paper: CEPR ID: DP12707
Authors: Bee Yan Aw; Yi Lee; Hylke Vandenbussche
Abstract: We develop and structurally estimate a trade model in order to identify the importance of consumer taste for exporters. The model separates taste from quality and productivity (TFPQ) at the fi rm-product level. Export data by destination countries allow us to identify the level of taste from consumer heterogeneity across destinations. We decompose export revenue into the contribution of taste, quality and costs. We fi nd that taste is very important and explains about 50% of the variation in export revenue. Productivity (TFPQ) differences between fi rm-products become more prominent than taste in explaining export success only when the cost elasticity of improving quality is high.
Keywords: taste; quality; productivity; exports; firm-product
JEL Codes: F12; F14
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| consumer taste (D12) | export revenue (F10) |
| taste (Y60) | underestimating demand-side importance (D12) |
| taste (Y60) | overestimating supply-side contributions to export revenues (F14) |
| differences in productivity (O49) | significance of taste (L66) |
| taste varies by product types and destination markets (L66) | role of taste (L66) |
| quality is more important for certain markets (L15) | taste plays a larger role in other markets (L66) |