Product Variety and Quality in Trade Dynamics

Masashige Hamano

No 2419, Working Papers from Waseda University, Faculty of Political Science and Economics

Abstract: This paper documents that product quality in international trade is negatively correlated with the number of traded varieties in global data. We account for this substitutability between trade variety and quality by developing a two-country international business cycle model with heterogeneous firms that endogenously determine product quality while entering and exiting export markets. Our theoretical model successfully replicates the wedge-shaped pattern of cross-correlations between the number of product varieties and the quality of trade, along with key statistics on U.S. trade dynamics.

Keywords: business cycle; product variety; product quality; firm heterogeneity (search for similar items in EconPapers)
JEL-codes: F12 F41 F43 (search for similar items in EconPapers)
Pages: 27 pages
Date: 2025-02
New Economics Papers: this item is included in nep-int
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Persistent link: https://EconPapers.repec.org/RePEc:wap:wpaper:2419

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