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Fading Choice: Transport Costs and Variety in Consumer Goods

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  • Jan Willem Gunning
  • Pramila Krishnan
  • Andualem T Mengistu

Abstract

We examine the spatial variation in variety of manufactured goods to study how choice fades with distance. We model monopolistically-competitive trade between market town and village and show how transport costs reduce consumer welfare through reduced variety. We use data from a purpose-designed survey of shops and consumers in villages in Ethiopia and prices of matched source and destination goods to estimate similar tastes for variety across space. Our estimates suggest an average mark-up of 10-15% and welfare costs of falling variety at 19% on average of expenditures on manufactures, in contrast to the e?ect of prices at an average of 1.75%. The cost of lower variety in remote places is substantial.

Suggested Citation

  • Jan Willem Gunning & Pramila Krishnan & Andualem T Mengistu, 2018. "Fading Choice: Transport Costs and Variety in Consumer Goods," CSAE Working Paper Series 2018-05-2, Centre for the Study of African Economies, University of Oxford.
  • Handle: RePEc:csa:wpaper:2018-05-2
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    Cited by:

    1. Krishnan, Pramila & Zhang, Peng, 2020. "Restricting trade and reducing variety: Evidence from Ethiopia," World Development, Elsevier, vol. 126(C).

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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • R12 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - General Regional Economics - - - Size and Spatial Distributions of Regional Economic Activity; Interregional Trade (economic geography)

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