Structural Estimation of Variety Gains from Trade Integration in a Heterogeneous Firms Framework
AbstractThe present paper structurally estimates the impact of increased variety in the EU and Asia over the period from 1989 to 2009. Using the most disaggregated import data available, we document that the number of varieties imported by the EU, defined as the number of import categories multiplied by the average number of source countries for each category, quadrupled, whereas it sextupled in Asia. About half of this increase was due to increases in the number of categories and half due to a doubling of the number of countries from which the EU and Asia imported each good. Using the Feenstra's (1994) methodology we estimate 35,000 elasticities and then construct an aggregate price index that is robust to common changes in quality variation, the arbitrary splitting of categories, the introduction of new goods, and other data problems. After reconstructing the EU and Asia import price indices, we found that the price of the EU imports has been falling at a rate 1.24 percent per year faster than one would have thought without taking new varieties into account. The variety gains for Asia are even higher - 2.69 percent per year.
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Bibliographic InfoPaper provided by Economics and Econometrics Research Institute (EERI), Brussels in its series EERI Research Paper Series with number EERI_RP_2010_02.
Date of creation: 02 Jan 2010
Date of revision:
Variety gains; structural estimation; trade integration; heterogenous firms.;
Find related papers by JEL classification:
- C68 - Mathematical and Quantitative Methods - - Mathematical Methods; Programming Models; Mathematical and Simulation Modeling - - - Computable General Equilibrium Models
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- F15 - International Economics - - Trade - - - Economic Integration
- F17 - International Economics - - Trade - - - Trade Forecasting and Simulation
- R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)
- R13 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - General Equilibrium and Welfare Economic Analysis of Regional Economies
- R23 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Household Analysis - - - Regional Migration; Regional Labor Markets; Population
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-03-20 (All new papers)
- NEP-INT-2010-03-20 (International Trade)
- NEP-SEA-2010-03-20 (South East Asia)
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- Ackerman Maarten & Charlotte du Toit, 2001. "A supply side approach for estimating a Neo-classical fixed investment model for the South African economy," EERI Research Paper Series EERI_RP_2001_05, Economics and Econometrics Research Institute (EERI), Brussels.
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