Abstract: The study of the trade theory based on non-homothetic preferences shows that income distribution structure will affect the quality structure of one country’s import and export commodities through demand structure. This paper firstly tries to identify the quality type of each subdivided export product, then performs a test to see whether there exist local market effects in the bilateral trade of the quality-competitive products between China and its major trading partners based on the gravity equation containing the factors of demand structure. The results indicate that there exist differences in the local market effects of different types of quality products; at the same time, along with the demand scale, the demand structure varies at different places, presenting differentiated impact on the local market effects. Therefore, China should match up the current demand structure and excavate the endogenous power to transform China’s foreign trade from the two sides of supply and demand.

Key words: non-homothetic preferences; demand structure; product quality; local market effects