Product Quality Preference, Machinery Import and Import-induced Export

Abstract

This paper constructs a monopolistic competition trade model to describe the mechanism of import-induced export which is defined as expansion of consumer product export size caused by import of massive advanced machinery. This paper introduces the product quality preference into the monopolistic competition trade model, and finds with the improvement of product quality, foreign demand for domestic manufactured consumer product will rise. Import of eligible machinery can raise the short-term profit and export volume of domestic consumer product manufacturers, and also raise total export volume of domestic consumer product industry.JEL Classification: F14, D20, O50