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Variety and Quality in Trade Dynamics

Author

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  • Hamano Masashige

    (Sophia University, Tokyo)

Abstract

This paper provides a simple two-country DSGE model that includes endoge- nous determination of both the number of traded varieties and the traded products quality with heterogeneous firms. By introducing product quality explicitly, the theo- retical model sheds light on the cyclical properties of quality in international trade. We find that aggregate product quality of exports and imports are both negatively correlated with real exports and imports in the US data. Our model can replicate a wedge-shaped pattern of cross-correlations, together with a number of statistics on US trade dynamics. We also perform several impulse response analyses and find that trade liberalization induces quality downgrading of exports and imports, which negatively impacts consumer welfare.

Suggested Citation

  • Hamano Masashige, 2016. "Variety and Quality in Trade Dynamics," DEM Discussion Paper Series 16-19, Department of Economics at the University of Luxembourg.
    • Handle: RePEc:luc:wpaper:16-19
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    File URL: https://wwwen-archive.uni.lu/content/download/96018/1162056/file/2016_19%20Variety%20and%20Quality%20in%20Trade%20Dynamics.pdf
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    Cited by:

    1. Masashige Hamano, 2017. "Missing Risk Sharing from International Transmission through Product Quality and Variety," DEM Discussion Paper Series 17-17, Department of Economics at the University of Luxembourg.

    More about this item

    Keywords

    product quality; product variety; firm entry; 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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