The Importance of Consumer Taste in Trade

48 Pages Posted: 9 Apr 2019

See all articles by Bee Yan Aw

Bee Yan Aw

Pennsylvania State University

Yi Lee

National Tsing Hua University

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR

Multiple version iconThere are 2 versions of this paper

Date Written: 2019

Abstract

This paper documents the importance of consumer taste in trade flows using Belgian firm-product customs data by destination. We identify consumer taste through the use of a control function approach and estimate it jointly with other demand parameters using a very flexible demand specification. Consumer taste is identified for every trade ow. The results show that taste decreases in distance but this relationship is not monotonic. The contribution of consumer taste to actual export revenue ranges between 1-31% depending on the product category in the food industry. Overall, the demand shifters, taste and product quality explain twice as much of the variation in export revenues than cost.

Keywords: tastes, quality, productivity, exports, firm-product

JEL Classification: F120, F140

Suggested Citation

Roberts, Bee Yan and Lee, Yi and Vandenbussche, Hylke, The Importance of Consumer Taste in Trade (2019). CESifo Working Paper No. 7580, Available at SSRN: https://ssrn.com/abstract=3368524 or http://dx.doi.org/10.2139/ssrn.3368524

Bee Yan Roberts (Contact Author)

Pennsylvania State University ( email )

501 Kern Building
University Park, PA 16802-3306
United States
814-863-1996 (Phone)
814-863-4775 (Fax)

HOME PAGE: http://econ.la.psu.edu/Biography_Pages/VITA.0901.pdf

Yi Lee

National Tsing Hua University ( email )

No. 101, Section 2, Guangfu Road, East District
Hsin Chu 3, 300
China

Hylke Vandenbussche

Catholic University of Leuven (KUL), CEPR ( email )

Faculty of Economics
Naamsestraat 69
B-3000 Leuven, 3000
Belgium
+32 16 326 920 (Phone)
+32 16 326 732 (Fax)

HOME PAGE: https://www.sites.google.com/site/vandenbusschehylke/home-1

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