GEP 2020/15: Consumer taste in trade

Abstract

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

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Authors

Bee Yan Aw, Yi Lee, and Hylke Vandenbussche

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