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Trade, product variety and welfare: A quantitative assessment for the transition economies in Central and Eastern Europe

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  • Michael Funke

    (Hamburg University Department of Economics)

  • Ralf Ruhwedel

    (Hamburg University Department of Economics)

Abstract

We calculate welfare gains of trade liberalization in the Central and East European transition economies, following the approach of Romer (1994), who emphasized that proper modeling of the impact of trade restrictions on the number of available product varieties is crucial to quantifying the welfare impact of trade liberalization. The empirical work relies on direct measures of product variety calculated from 5- digit trade data. Although the issue is far from settled, the emerging conclusion is that freer trade has boosted welfare.

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File URL: http://128.118.178.162/eps/mac/papers/0401/0401016.pdf
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Bibliographic Info

Paper provided by EconWPA in its series Macroeconomics with number 0401016.

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Length: 24 pages
Date of creation: 30 Jan 2004
Date of revision:
Handle: RePEc:wpa:wuwpma:0401016

Note: Type of Document - ; pages: 24; figures: included
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Web page: http://128.118.178.162

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Keywords: Trade Liberalization; Product Variety; Welfare; Transition Economies;

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References

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  1. Harris, Richard, 1984. "Applied General Equilibrium Analysis of Small Open Economies with Scale Economies and Imperfect Competition," American Economic Review, American Economic Association, vol. 74(5), pages 1016-32, December.
  2. Tito Boeri & Joaquim Oliveira Martins, 2000. "Varieties, Jobs and EU Enlargement," William Davidson Institute Working Papers Series 301, William Davidson Institute at the University of Michigan.
  3. Romer, Paul, 1994. "New goods, old theory, and the welfare costs of trade restrictions," Journal of Development Economics, Elsevier, vol. 43(1), pages 5-38, February.
  4. Feenstra, Robert C. & Madani, Dorsati & Yang, Tzu-Han & Liang, Chi-Yuan, 1999. "Testing endogenous growth in South Korea and Taiwan," Journal of Development Economics, Elsevier, vol. 60(2), pages 317-341, December.
  5. Robert Feenstra, 2003. "Integration Of Trade And Disintegration Of Production In The Global Economy," Working Papers 986, University of California, Davis, Department of Economics.
  6. Dani Rodrik, 1992. "Foreign Trade in Eastern Europe's Transition: Early Results," NBER Working Papers 4064, National Bureau of Economic Research, Inc.
  7. Drábek, Zdenek & Smith, Alasdair, 1995. "Trade Performance and Trade Policy in Central and Eastern Europe," CEPR Discussion Papers 1182, C.E.P.R. Discussion Papers.
  8. Robert C. Feenstra, 1992. "How Costly Is Protectionism?," Journal of Economic Perspectives, American Economic Association, vol. 6(3), pages 159-178, Summer.
  9. Ralf Ruhwedel & Michael Funke, 2005. "Export Variety and Economic Growth in East European Transition Economies," Quantitative Macroeconomics Working Papers 20502, Hamburg University, Department of Economics.
  10. Jeffrey Sachs & Andrew Warner, 1995. "Economic Reform and the Progress of Global Integration," Harvard Institute of Economic Research Working Papers 1733, Harvard - Institute of Economic Research.
  11. Michael Funke & Ralf Ruhwedel, 2000. "Product Variety and Economic Growth - Empirical Evidence for the OECD Countries," CESifo Working Paper Series 250, CESifo Group Munich.
  12. Robert C. Feenstra, 1995. "Estimating the Effects of Trade Policy," NBER Working Papers 5051, National Bureau of Economic Research, Inc.
  13. 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.
  14. Hoekman, Bernard & Djankov, Simeon, 1997. "Determinants of the Export Structure of Countries in Central and Eastern Europe," World Bank Economic Review, World Bank Group, vol. 11(3), pages 471-87, September.
  15. Rutherford, Thomas F. & Tarr, David G., 1998. "Trade liberalization and endogenous growth in a small open economy : a quantitative assessment," Policy Research Working Paper Series 1970, The World Bank.
  16. David Hummels & Peter J. Klenow, 2002. "The Variety and Quality of a Nation's Trade," NBER Working Papers 8712, National Bureau of Economic Research, Inc.
  17. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  18. Feenstra, Robert C. & Yang, Tzu-Han & Hamilton, Gary G., 1999. "Business groups and product variety in trade: evidence from South Korea, Taiwan and Japan," Journal of International Economics, Elsevier, vol. 48(1), pages 71-100, June.
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Citations

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Cited by:
  1. Nirvikar Singh, 2004. "Transaction Costs, Information Technology and Development," Development and Comp Systems 0412005, EconWPA.
  2. Paul R. Bergin & Reuven Glick, 2005. "Tradability, productivity, and understanding international economic integration," Working Paper Series 2005-13, Federal Reserve Bank of San Francisco.
  3. Itai Agur, 2006. "Firm Heterogeneity and the Two Sources of Gains from Trade," Economics Working Papers ECO2006/38, European University Institute.
  4. Marta Arespa, 2013. "The intensive and the extensive margins: not only an international issue," Portuguese Economic Journal, Springer, vol. 12(1), pages 1-34, April.
  5. 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.

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