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Globalization and the Gains from Variety

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Listed author(s):
  • David Weinstein
  • Christian Broda

Abstract

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

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Paper provided by Society for Economic Dynamics in its series 2004 Meeting Papers with number 530.

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Date of creation: 2004
Handle: RePEc:red:sed004:530
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Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA

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Keywords: Gains from Trade; Imperfect competition; New goods bias; Variety Growth;

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Find related papers by JEL classification:
  • F02 - International Economics - - General - - - International Economic Order and Integration
  • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
  • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. How big are the gains from trade?
    by jdingel in Trade diversion on 2010-09-21 03:44:34
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