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Globalization of Markets and Ethnocentrism: New Insights for the Environment

Author

Listed:
  • Ornella Tarola

    (University of Rome La Sapienza)

  • skerdilajda Zanaj

    (Department of Economics and Management, Université du Luxembourg)

Abstract

(To consult this DP, please send an e-mail to dem@uni.lu) We define a model of international trade with two countries, two vertically differentiated goods, and heterogeneous consumers in terms of their willingness to pay for quality. Trade generates two sources of pollution: the production of domestic and traded goods and the transportation of goods between the two countries. Consumers in both countries manifest home bias, which translates into ethnocentric preferences: (i) consumers perceive the quality of the domestic good as amplified, and (ii) consumers derive additional satisfaction when consuming a domestic good rather than a foreign one since only the former can satisfy their sense of place; in contrast, they suffer a psychological penalty when consuming a foreign product. We investigate the role of trade costs and ethnocentrism in shaping the equilibrium configuration of the international duopoly. Finally, we uncover the environmental damage from production and from transport in the presence of ethnocentrism.

Suggested Citation

  • Ornella Tarola & skerdilajda Zanaj, 2020. "Globalization of Markets and Ethnocentrism: New Insights for the Environment," DEM Discussion Paper Series 20-18, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:20-18
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    References listed on IDEAS

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    Cited by:

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    2. Jean J. Gabszewicz & Marco A. Marini & Skerdilajda Zanaj, 2017. "Random Encounters and Information Diffusion about Markets," DEM Discussion Paper Series 17-24, Department of Economics at the University of Luxembourg.

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    More about this item

    Keywords

    ethnocentrism; international trade; environmental damage; relative preferences; vertically differentiated mode.;
    All these keywords.

    JEL classification:

    • D43 - Microeconomics - - Market Structure, Pricing, and Design - - - Oligopoly and Other Forms of Market Imperfection
    • F10 - International Economics - - Trade - - - General
    • F15 - International Economics - - Trade - - - Economic Integration
    • Q56 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environment and Development; Environment and Trade; Sustainability; Environmental Accounts and Accounting; Environmental Equity; Population Growth

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