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Technology, Preference for Quality, and Vertical Intra-Industry Trade
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Abstract
This paper provides a simple theoretical model to investigate determinants of the vertical IIT based on Bertrand price competition. We find that the volume of trade is higher among countries where R&D investments are larger. In addition, the vertical IIT share increases with the similarity between two countries in terms of technology and per-capita income. Our theoretical findings are consistent with recent empirical findings.
KeywordsTechnologyPreference for QualityVolume of TradeVertical Intra-Industry Trade
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