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Product Variety and Quality in Trade Dynamics

Author

Listed:
  • Masashige Hamano

    (Waseda University)

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.

Suggested Citation

  • Masashige Hamano, 2025. "Product Variety and Quality in Trade Dynamics," Working Papers 2419, Waseda University, Faculty of Political Science and Economics.
    • Handle: RePEc:wap:wpaper:2419
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    File URL: https://www.waseda.jp/fpse/winpec/assets/uploads/2025/02/698b879afbba26453bf8f1d660ef3780.pdf
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    More about this item

    Keywords

    business cycle; product variety; product quality; firm heterogeneity;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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