Measuring Variety and Quality of Products with Trademarks

The variety and quality of products has a great importance in the analysis of international trade flows. Several theoretical models show that larger and richer economies produce and export goods characterized by higher variety and quality. Accordingly, empirical studies have tried to quantify this relationship by investigating directly the composition of trade. In this paper we propose the use of trademarks to estimate the variety and quality of goods and services. We consider the Community trademark applications filed by 120 countries and distinguish the variety of the underlying products across classes (extensive margin) from the variety within classes (intensive margin). Then we estimate the quality of a country's goods and services observing how much its trademarks are extended on multiple classes (quality margin). The empirical analysis consists of simple cross-sections of the 'applicant' countries. The extensive margin is found to account for about 40% of the higher number of entries of larger and richer economies, while differences in quality seem to explain about 10% of national differences in trademark applications. These findings partially confirm those of previous empirical studies, although the nature of the data and the methods of classification lead to some quantitative discrepancies and to a different interpretation of the results.