Royale with Cheese: The Effect of Globalization on the Variety of Goods
AbstractThe key result of the so-called “New Trade Theory” is that countries gain from falling trade costs by an increase in the number of varieties available to consumers. Though the number of varieties in a given country rises, it is also true that global variety decreases from increased competition wherein imported varieties drive out some local varieties. This second result is a major issue for anti-trade activists who criticize the move towards free trade as promoting homogenization” or “Americanization” of varieties across countries. We present a model of endogenous entry with heterogeneous firms which models this concern in two ways: a portion of a consumer’s income is spent overseas (i.e. tourism) and an existence value (a common tool in environmental economics where simply knowing that a species exists provides utility). Since lowering trade costs induces additional varieties to export and drives out some non-exported varieties, these modifications result in welfare losses not accounted for in the existing literature. Nevertheless, it is only through the existence value that welfare can fall as a result of declining trade barriers. Thus, for these criticisms of globalization to dominate, it must be that this loss in the existence value outweighs the direct benefits from consumption.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by IIIS in its series The Institute for International Integration Studies Discussion Paper Series with number iiisdp329.
Length: 21 pages
Date of creation: Jul 2010
Date of revision:
firm heterogeneity; tourism;
Other versions of this item:
- Matthew T Cole & Ronald B Davies, 2010. "Royale with Cheese: The Effect of Globalization on the Variety of Goods," Working Papers 201024, School Of Economics, University College Dublin.
- F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-08-28 (All new papers)
- NEP-INT-2010-08-28 (International Trade)
- NEP-TUR-2010-08-28 (Tourism Economics)
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Jan Jørgensen & Philipp Schröder & Zhihao Yu, 2012. "Globalization beyond partitioning: back to Krugman’s world," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 148(1), pages 73-87, April.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Eva Mateo).
If references are entirely missing, you can add them using this form.