Traditional trade models ignoring the dimension of product quality generally lead to excessively low trade price elasticities. In this paper, we show that higher estimated trade price elasticities, more in conformity with theory, can be obtained by controlling product quality in trade equations....

Recent geography and trade empirical studies based on monopolistic competition [Hanson, 1998 ; Head and Ries, 1999 ; Hummels, 1999], suggest high levels of trade price elasticities (between 3 and11). However, direct estimations of price-elasticities in trade equations, using price indexes at...