Abstract:A growing literature suggests that high-income countries export high-quality goods.Two hypotheses may explain such specialization, with different implications for welfare, inequality, and trade policy. Fajgelbaum, Grossman, and Helpman (JPE 2011) formalize the Linder (1961) conjecture that home demand determines the pattern of specialization and therefore predict that high-income locations export high-quality products.The factor-proportions model also predicts that skill-abundant, high-income locations export … Show more
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