DP13614 The Importance of Consumer Taste in Trade

Author(s): Bee Yan Aw-Roberts, Yi Lee, Hylke Vandenbussche
Publication Date: March 2019
Date Revised: June 2019
Keyword(s): consumer heterogeneity, exports, firm-product, marginal cost, Quality, tastes
JEL(s): F12, F14
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=13614

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.