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Variety and Quality in Trade Dynamics


  • Hamano Masashige

    () (Sophia University, Tokyo)


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," CREA Discussion Paper Series 16-19, Center for Research in Economic Analysis, University of Luxembourg.
  • Handle: RePEc:luc:wpaper:16-19

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    Cited by:

    1. Masashige Hamano, 2017. "Missing Risk Sharing from International Transmission through Product Quality and Variety," CREA Discussion Paper Series 17-17, Center for Research in Economic Analysis, University of Luxembourg.

    More about this item


    product quality; product variety; firm entry; firm heterogeneity;

    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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