Product quality and export volatility in international trade: an empirical assessment

The present article falls within the empirical research in international trade and, more speci cally, on the role that product quality plays in exporting strategies. A growing recent literature focuses on the channels through which product quality improves trade performances under di erent aspects. However, whether quality leads to higher stability of trade exchanges has not been investigated yet. In this paper we examine the rela- tionship between quality of products and their volatility on the international markets. Income variability generates uctuations on the demand of imported products, which in turn represents a major source of trade volatility for the exporters. Under the hypothesis that higher quality products are more income elastic than the lower quality ones, we expect to observe a major variability in export volumes for high quality products. The analysis is conducted on bilateral trade for more than 100 countries over the period 1997 { 2008. To estimate quality we rely on the approach rstly implemented in international trade by Khandelwal (2010), which assigns a higher quality to products with higher mar- ket shares conditional on price. The results show that export of high quality products are more volatile on international markets, and that the export volatility increases with quality as the variability of domestic consumption of the importer growths.