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Domestic productivity and variety gains from trade

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  • Ardelean, Adina
  • Lugovskyy, Volodymyr

Abstract

We show theoretically and confirm empirically that domestic productivity has a significant impact on the demand for foreign varieties under the assumption that domestic and foreign varieties are imperfect substitutes. In particular, the demand for imported varieties is more elastic for countries with comparative advantage. For an average good facing a median trade barrier, doubling the importer-exporter relative export performance decreases the number of imported varieties by 17%. Our findings suggest that the variety gains estimates could be significantly biased if we ignore the substitutability between imported and domestic varieties.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 80 (2010)
Issue (Month): 2 (March)
Pages: 280-291

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Handle: RePEc:eee:inecon:v:80:y:2010:i:2:p:280-291

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Variety gains Trade Comparative advantage Product differentiation Monopolistic competition;

References

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  1. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358 - 392.
  2. Edward J. Balistreri & Russell H. Hillberry & Thomas F. Rutherford, 2008. "Structural Estimation and Solution of International Trade Models with Heterogeneous Firms," CER-ETH Economics working paper series 08/89, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  3. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
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  6. Robert C. Feenstra & Hiau Looi Kee, 2007. "Trade Liberalisation and Export Variety: A Comparison of Mexico and China," The World Economy, Wiley Blackwell, vol. 30(1), pages 5-21, 01.
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  8. J. David Richardson & Chi Zhang, 1999. "Revealing Comparative Advantage: Chaotic or Coherent Patterns Across Time and Sector and U.S. Trading Partner?," NBER Working Papers 7212, National Bureau of Economic Research, Inc.
  9. Andrew B Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2000. "Plants and productivity in international trade," Working Papers 00-08, Center for Economic Studies, U.S. Census Bureau.
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  11. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  12. Robert C. Feenstra, 2010. "Measuring the gains from trade under monopolistic competition," Canadian Journal of Economics, Canadian Economics Association, vol. 43(1), pages 1-28, February.
  13. Paul M. Romer, 1994. "New Goods, Old Theory, and the Welfare Costs of Trade Restrictions," NBER Working Papers 4452, National Bureau of Economic Research, Inc.
  14. Christian Broda & David Weinstein, 2004. "Globalization and the gains from variety," Staff Reports 180, Federal Reserve Bank of New York.
  15. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  16. Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
  17. Feenstra, Robert & Kee, Hiau Looi, 2008. "Export variety and country productivity: Estimating the monopolistic competition model with endogenous productivity," Journal of International Economics, Elsevier, vol. 74(2), pages 500-518, March.
  18. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
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Citations

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Cited by:
  1. Carluccio, Juan & Fally, Thibault, 2010. "Foreign Entry and Spillovers with Technological Incompatibilities in the Supply Chain," CEPR Discussion Papers 7866, C.E.P.R. Discussion Papers.
  2. Lukas Mohler, 2012. "Variety Gains and the Extensive Margin of Trade," Working papers 2012/16, Faculty of Business and Economics - University of Basel.
  3. Arnade, Carlos A. & Gopinath, Munisamy & Pick, Daniel H., 2011. "How Much Do Consumers Benefit from New Brand Introductions? The Case of Potato Chips," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), April.
  4. Esteban Jaimovich, 2012. "Import Diversification along the Growth Path," Carlo Alberto Notebooks 242, Collegio Carlo Alberto.
  5. João Barata R. B. Barroso, 2013. "Does trade shrink the measure of domestic firms?," Working Papers Series 332, Central Bank of Brazil, Research Department.
  6. Lukas Mohler & Michael Seitz, 2012. "The gains from variety in the European Union," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(3), pages 475-500, September.
  7. Mohler, Lukas & Seitz, Michael, 2010. "The Gains from Variety in the European Union," Discussion Papers in Economics 11477, University of Munich, Department of Economics.
  8. Lugovskyy, Volodymyr; Skiba, Alexandre, 2010. "Transport Cost and Endogenous Quality Choice," CAGE Online Working Paper Series 17, Competitive Advantage in the Global Economy (CAGE).

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