IDEAS home Printed from https://ideas.repec.org/p/ecm/latm04/327.html
   My bibliography  Save this paper

Globalization And The Gains From Variety

Author

Listed:
  • David E. Weinstein
  • Christian Broda

Abstract

Since the seminal work of Krugman (1979), product variety has played a central role in models of trade and growth. In spite of the general use of love-of-variety models, there has been no systematic study of how the import of new varieties has contributed to national welfare gains in the United States. In this paper we show that the unmeasured growth in product variety from US imports has been an important source of gains from trade over the last three decades (1972-2001). Using extremely disaggregated data, we show that the number of imported product varieties has increased by a factor of four. We also estimate the elasticities of substitution for each available category at the same level of aggregation, and describe their behavior across time and SITC-5 industries. Using these estimates we develop an exact price index and find that the upward bias in the conventional import price index is approximately 1.2 percent per year. The magnitude of this bias suggests that the welfare gains from variety growth in imports alone are 2.8 percent of GDP

Suggested Citation

  • David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  • Handle: RePEc:ecm:latm04:327
    as

    Download full text from publisher

    File URL: http://repec.org/esLATM04/up.28951.1082602312.pdf
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Roberto Rigobon & Brian Sack, 2003. "Measuring The Reaction of Monetary Policy to the Stock Market," The Quarterly Journal of Economics, Oxford University Press, vol. 118(2), pages 639-669.
    2. Hansen, Lars Peter, 1982. "Large Sample Properties of Generalized Method of Moments Estimators," Econometrica, Econometric Society, vol. 50(4), pages 1029-1054, July.
    3. Amil Petrin, 2001. "Quantifying the Benefits of New Products: The Case of the Minivan," NBER Working Papers 8227, National Bureau of Economic Research, Inc.
    4. Rauch, James E., 1999. "Networks versus markets in international trade," Journal of International Economics, Elsevier, vol. 48(1), pages 7-35, June.
    5. Masahisa Fujita & Paul Krugman & Anthony J. Venables, 2001. "The Spatial Economy: Cities, Regions, and International Trade," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262561476, December.
    6. Berry, Steven & Levinsohn, James & Pakes, Ariel, 1995. "Automobile Prices in Market Equilibrium," Econometrica, Econometric Society, vol. 63(4), pages 841-890, July.
    7. Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
    8. Griliches, Zvi & Hausman, Jerry A., 1986. "Errors in variables in panel data," Journal of Econometrics, Elsevier, vol. 31(1), pages 93-118, February.
    9. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    10. 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.
    11. Goldberg, Pinelopi Koujianou, 1995. "Product Differentiation and Oligopoly in International Markets: The Case of the U.S. Automobile Industry," Econometrica, Econometric Society, vol. 63(4), pages 891-951, July.
    12. Thomas F. Rutherford & David G. Tarr, 2017. "Trade liberalization, product variety and growth in a small open economy: a quantitative assessment," World Scientific Book Chapters, in: Trade Policies for Development and Transition, chapter 17, pages 389-414, World Scientific Publishing Co. Pte. Ltd..
    13. Leamer, Edward E, 1981. "Is It a Demand Curve, or Is It a Supply Curve? Partial Identification through Inequality Constraints," The Review of Economics and Statistics, MIT Press, vol. 63(3), pages 319-327, August.
    14. Paul M. Romer, 1990. "Capital, Labor, and Productivity," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 21(1990 Micr), pages 337-367.
    15. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-228, May.
    16. Hausman, Jerry A, 1981. "Exact Consumer's Surplus and Deadweight Loss," American Economic Review, American Economic Association, vol. 71(4), pages 662-676, September.
    17. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    18. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
    19. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    20. Lancaster, Kelvin, 1975. "Socially Optimal Product Differentiation," American Economic Review, American Economic Association, vol. 65(4), pages 567-585, September.
    Full references (including those not matched with items on IDEAS)

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Lukas Mohler, 2009. "Globalization and the Gains from Variety: The Case of a Small Open Economy," FIW Working Paper series 031, FIW.
    2. Lukas Mohler & Michael Seitz, 2012. "The gains from variety in the European Union," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 148(3), pages 475-500, September.
    3. Ardelean, Adina & Lugovskyy, Volodymyr, 2010. "Domestic productivity and variety gains from trade," Journal of International Economics, Elsevier, vol. 80(2), pages 280-291, March.
    4. Ahmad Lashkaripour, 2014. "Markups, International Specialization, and the Gains from Trade," 2014 Papers pla686, Job Market Papers.
    5. Mohler, Lukas, 2009. "Globalization and the gains from variety: size and openness of countries and the extensive margin," MPRA Paper 17592, University Library of Munich, Germany.
    6. Lukas Mohler, 2011. "Variety Gains from Trade in Switzerland," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 147(I), pages 45-70, March.
    7. Konstantins Benkovskis & Julia Wörz, 2014. "How does taste and quality impact on import prices?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(4), pages 665-691, November.
    8. Konstantins Benkovskis & Julia Wörz, 2011. "How Does Quality Impact on Import Prices?," Working Papers 175, Oesterreichische Nationalbank (Austrian Central Bank).
    9. Kozo Kiyota, 2010. "Are US Exports Different from China’s Exports? Evidence from Japan’s Imports," The World Economy, Wiley Blackwell, vol. 33(10), pages 1302-1324, October.
    10. Broda, Christian & Greenfield, Joshua & Weinstein, David E., 2017. "From groundnuts to globalization: A structural estimate of trade and growth," Research in Economics, Elsevier, vol. 71(4), pages 759-783.
    11. Jonathan Eaton & Ana Cecília Fieler, 2019. "The Margins of Trade," NBER Working Papers 26124, National Bureau of Economic Research, Inc.
    12. Konstantins Benkovskis & Ramune Rimgailaite, 2011. "The quality and variety of exports from the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(4), pages 723-747, October.
    13. Kang, Kichun, 2009. "The export price index with the effect of variety and an empirical analysis," Economic Modelling, Elsevier, vol. 26(2), pages 385-391, March.
    14. Benkovskis, Konstantins & Wörz, Julia, 2018. "What drives the market share changes? Price versus non-price factors," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 9-29.
    15. Redding, Stephen J. & Weinstein, David E., 2016. "A unified approach to estimating demand and welfare," LSE Research Online Documents on Economics 67681, London School of Economics and Political Science, LSE Library.
    16. Bouët, Antoine & Estrades, Carmen & Laborde, David, 2011. "Households heterogeneity in a global CGE model: an illustration with the MIRAGE poverty module," Conference papers 332034, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    17. Konstantīns Beņkovskis, 2012. "Competitiveness of Latvia's exporters," Baltic Journal of Economics, Baltic International Centre for Economic Policy Studies, vol. 12(2), pages 17-45, December.
    18. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721-765.
    19. Kancs, d'Artis & Persyn, Damiaan, 2019. "Welfare Gains from the Variety Growth," Working Papers 2019-01, Joint Research Centre, European Commission.
    20. Lukas Mohler, 2014. "Variety Gains and the Extensive Margin of Trade," International Economic Journal, Taylor & Francis Journals, vol. 28(4), pages 543-558, December.

    More about this item

    Keywords

    Gains from trade; Love-of-variety models; US Trade; Elasticities of Substitution.;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:ecm:latm04:327. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Christopher F. Baum (email available below). General contact details of provider: https://edirc.repec.org/data/essssea.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.