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Globalization And The Gains From Variety


  • David E. Weinstein
  • Christian Broda


Since the seminal work of Krugman (1979), product variety has played a central role in models of trade and growth. In spite of the general use of love-of-variety models, there has been no systematic study of how the import of new varieties has contributed to national welfare gains in the United States. In this paper we show that the unmeasured growth in product variety from US imports has been an important source of gains from trade over the last three decades (1972-2001). Using extremely disaggregated data, we show that the number of imported product varieties has increased by a factor of four. We also estimate the elasticities of substitution for each available category at the same level of aggregation, and describe their behavior across time and SITC-5 industries. Using these estimates we develop an exact price index and find that the upward bias in the conventional import price index is approximately 1.2 percent per year. The magnitude of this bias suggests that the welfare gains from variety growth in imports alone are 2.8 percent of GDP

Suggested Citation

  • David E. Weinstein & Christian Broda, 2004. "Globalization And The Gains From Variety," Econometric Society 2004 Latin American Meetings 327, Econometric Society.
  • Handle: RePEc:ecm:latm04:327

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    References listed on IDEAS

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    More about this item


    Gains from trade; Love-of-variety models; US Trade; Elasticities of Substitution.;

    JEL classification:

    • F1 - International Economics - - Trade
    • E3 - Macroeconomics and Monetary Economics - - Prices, Business Fluctuations, and Cycles

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