DP14941 Consumer Taste in Trade

Author(s): Bee Yan Aw-Roberts, Yi Lee, Hylke Vandenbussche
Publication Date: June 2020
Keyword(s): consumer taste, exports, firm-product, Food, productivity, Quality
JEL(s): F12, F14
Programme Areas: International Trade and Regional Economics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=14941

This paper documents the importance of consumer taste for the food industry using firm-product level customs data by destination country. We identify consuer taste through the use of a control function approach and estimate it jointly with other demand parameters using a flexible demand specification. We find that, on average, consumer taste explains as much of the variation in export revenue as marginal costs. The contribution of consumer taste to export revenue variation, ranges between 2% to 30% depending on the product category in the food industry. Our results also show that consumer taste decreases in distance but this relationship is non-monotonic.