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The Variety and Quality of a Nation's Trade


David L. Hummels


Purdue University - Department of Economics; National Bureau of Economic Research (NBER)

Peter J. Klenow


Stanford University - Department of Economics; National Bureau of Economic Research (NBER)

January 2002

NBER Working Paper No. w8712

Abstract:     
Not surprisingly, big countries trade more than small countries. In this paper we use data on shipments by 110 exporters to 59 importers in 5,000 product categories to ask: how? Do big countries trade larger quantities of a common set of goods (the intensive margin), a larger set of goods (the extensive margin), or higher quality goods? We find that the extensive margin accounts for two-thirds of the greater exports of larger economies, and one-third of the greater imports of larger economies. Richer countries export more units at higher prices. These calculations are useful for distinguishing features of trade models that correspond more or less well to the data. Models with Armington national product differentiation do not feature the extensive margin, and wrongly predict that greater output will be accompanied by worse terms of trade. 'Krugman' style models with firm level product differentation fare better, but must be modified to include quality differentiation and fixed costs of trading to match all of the facts. Estimates based on these modifications imply that differences in goods' quality could be the proximate cause of about 25% of country differences in real income per worker.

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Date posted: January 17, 2002  

Suggested Citation

Hummels, David L. and Klenow, Peter J., The Variety and Quality of a Nation's Trade (January 2002). NBER Working Paper No. w8712. Available at SSRN: http://ssrn.com/abstract=297338

Contact Information

David L. Hummels
Purdue University - Department of Economics ( email )
West Lafayette, IN 47907-1310
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
Peter J. Klenow (Contact Author)
Stanford University - Department of Economics ( email )
Landau Economics Building
579 Serra Mall
Stanford, CA 94305-6072
United States
National Bureau of Economic Research (NBER)
1050 Massachusetts Avenue
Cambridge, MA 02138
United States
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