With the seminal work of Feenstra (1994) and its application to the United States by Broda and Weinstein (2006) the gains from variety through trade as suggested by Krugman (1979) have become quantifiable. My paper adds to this literature in different respects: On the theoretical side, the Feenstra ratios are reinterpreted to allow for unobserved growth at the extensive margin. Also, the gains from variety are decomposed regarding countries of origin and industries. On the empirical side, the gains from variety are calculated for the United States and Switzerland, a small open economy. Analyzing the empirical results for these countries as well as data from other OECD economies, it is then argued that size and openness of countries as well as the (unobserved) true growth at the extensive margin are important factors in determining the welfare gains from variety.
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number
17592.
Find related papers by JEL classification: F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
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