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Domestic productivity and variety gains from trade

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  • Ardelean, Adina
  • Lugovskyy, Volodymyr

Abstract

We show theoretically and confirm empirically that domestic productivity has a significant impact on the demand for foreign varieties under the assumption that domestic and foreign varieties are imperfect substitutes. In particular, the demand for imported varieties is more elastic for countries with comparative advantage. For an average good facing a median trade barrier, doubling the importer-exporter relative export performance decreases the number of imported varieties by 17%. Our findings suggest that the variety gains estimates could be significantly biased if we ignore the substitutability between imported and domestic varieties.

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  • Ardelean, Adina & Lugovskyy, Volodymyr, 2010. "Domestic productivity and variety gains from trade," Journal of International Economics, Elsevier, vol. 80(2), pages 280-291, March.
  • Handle: RePEc:eee:inecon:v:80:y:2010:i:2:p:280-291
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    1. Lugovskyy, Volodymyr; Skiba, Alexandre, 2010. "Transport Cost and Endogenous Quality Choice," CAGE Online Working Paper Series 17, Competitive Advantage in the Global Economy (CAGE).
    2. 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.
    3. 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.
    4. Lukas Mohler, 2014. "Variety Gains and the Extensive Margin of Trade," International Economic Journal, Taylor & Francis Journals, vol. 28(4), pages 543-558, December.
    5. D’Artis Kancs, 2010. "Structural Estimation of Variety Gains from Trade Integration in Asia," Australian Economic Review, The University of Melbourne, Melbourne Institute of Applied Economic and Social Research, vol. 43(3), pages 270-288, September.
    6. Robert C. Feenstra & Philip Luck & Maurice Obstfeld & Katheryn N. Russ, 2018. "In Search of the Armington Elasticity," The Review of Economics and Statistics, MIT Press, vol. 100(1), pages 135-150, March.
    7. Wyatt J. Brooks & Pau S. Pujolàs, 2014. "Nonlinear Gravity," Department of Economics Working Papers 2014-15, McMaster University.
    8. Machado, José A.F. & Santos Silva, J.M.C. & Wei, Kehai, 2016. "Quantiles, corners, and the extensive margin of trade," European Economic Review, Elsevier, vol. 89(C), pages 73-84.
    9. Ulf Lewrick & Lukas Mohler & Rolf Weder, 2016. "Trade in variety and domestic production: Evidence from US manufacturing," Canadian Journal of Economics, Canadian Economics Association, vol. 49(4), pages 1631-1657, November.
    10. Kancs, d'Artis & Persyn, Damiaan, 2019. "Welfare Gains from the Variety Growth," Working Papers 2019-01, Joint Research Centre, European Commission (Ispra site).
    11. Lewrick, Ulf & Mohler, Lukas & Weder, Rolf, 2011. "International Trade in Variety and Domestic Production," Working papers 2011/03, Faculty of Business and Economics - University of Basel.
    12. João Barata R. B. Barroso, 2013. "Does trade shrink the measure of domestic firms?," Working Papers Series 332, Central Bank of Brazil, Research Department.
    13. Jaimovich, Esteban, 2012. "Import diversification along the growth path," Economics Letters, Elsevier, vol. 117(1), pages 306-310.
    14. Carluccio, Juan & Fally, Thibault, 2013. "Foreign entry and spillovers with technological incompatibilities in the supply chain," Journal of International Economics, Elsevier, vol. 90(1), pages 123-135.
    15. Lugovskyy, Volodymyr & Skiba, Alexandre, 2016. "Positive and negative effects of distance on export prices," Journal of Economic Behavior & Organization, Elsevier, vol. 127(C), pages 155-181.
    16. Soderbery, Anson, 2018. "Trade elasticities, heterogeneity, and optimal tariffs," Journal of International Economics, Elsevier, vol. 114(C), pages 44-62.
    17. Arnade, Carlos Anthony & Gopinath, Munisamy & Pick, Daniel H., 2011. "How Much Do Consumers Benefit from New Brand Introductions? The Case of Potato Chips," Journal of Agricultural and Resource Economics, Western Agricultural Economics Association, vol. 36(1), pages 1-17, April.
    18. Gnangnon, Sèna Kimm, 2020. "Aid for Trade, Export Product Diversification and Import Product Diversification," EconStor Preprints 223021, ZBW - Leibniz Information Centre for Economics.

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