Discussion Paper Details

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Title: The Importance of Consumer Taste in Trade

Author(s): Bee Yan Aw-Roberts, Yi Lee and Hylke Vandenbussche

Publication Date: March 2019

Keyword(s): consumer heterogeneity, exports, firm-product, marginal cost, Quality and tastes

Programme Area(s): International Trade and Regional Economics

Abstract: This paper documents the importance of consumer taste in the food industry 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. The results show that taste decreases in distance but this relationship is not monotonic. The contribution of consumer taste to actual export revenue ranges from 1% to 31% depending on the product category in the food industry. On average, consumer taste explains about as much of the variation in exports as marginal costs.

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Bibliographic Reference

Aw-Roberts, B, Lee, Y and Vandenbussche, H. 2019. 'The Importance of Consumer Taste in Trade'. London, Centre for Economic Policy Research.