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Love of variety and gains from trade
[Goût pour la variété et gains à l'échange]

Author

Listed:
  • Christophe C. Gouel

    (CEPII - Centre d'Etudes Prospectives et d'Informations Internationales - Centre d'analyse stratégique, UMR PSAE - Paris-Saclay Applied Economics - AgroParisTech - Université Paris-Saclay - INRAE - Institut National de Recherche pour l’Agriculture, l’Alimentation et l’Environnement)

  • Sébastien Jean

    (Cnam - Conservatoire National des Arts et Métiers [Cnam], LIRSA - Laboratoire interdisciplinaire de recherche en sciences de l'action - Cnam - Conservatoire National des Arts et Métiers [Cnam])

Abstract

We show analytically and quantitatively how gains from trade depend on love of variety, defined as the extent to which an additional product variety generates benefits in either final or intermediate consumption. To do this, we use a multi-country, multi-sector heterogeneous-firm gravity trade model where love of variety is parameterized separately from product substitutability using a generalized CES demand function. Counterfactual simulations based on a calibrated version of this model show that the gains from trade commonly vary by a proportion of one to three depending on the value of the love-of-variety elasticity. Trade war simulations also point to the strong sensitivity of the assessed impacts. We conclude that love of variety may be an important determinant of the gains from trade, an aspect that has so far been overlooked for the sake of convenience in the modeling framework and due to lack of empirical estimates.

Suggested Citation

  • Christophe C. Gouel & Sébastien Jean, 2023. "Love of variety and gains from trade [Goût pour la variété et gains à l'échange]," Post-Print hal-04179396, HAL.
    • Handle: RePEc:hal:journl:hal-04179396
    DOI: 10.1016/j.euroecorev.2023.104558
    Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-04179396v1
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    Cited by:

    1. is not listed on IDEAS
    2. Cheng‐wei Chang, 2023. "Optimal fiscal policy under monopolistic competition with firm heterogeneity," Scottish Journal of Political Economy, Scottish Economic Society, vol. 70(5), pages 423-438, November.

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    Keywords

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    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations

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