IDEAS home Printed from https://ideas.repec.org/a/taf/intecj/v28y2014i4p543-558.html
   My bibliography  Save this article

Variety Gains and the Extensive Margin of Trade

Author

Listed:
  • Lukas Mohler

Abstract

Findings from the literature suggest that previous estimates of the variety gains from trade are too small because of the imprecise measurement of the imported variety set under the Armington assumption. In this contribution, the lambda ratios as presented in Feenstra (1994) are first modified by assuming that all import variations are due to extensive margin adjustments. Under this extreme assumption, variety gains increase by a factor of six compared with the baseline Armington product-country variety differentiation case. Second, results from the literature on multi-product firms are used to obtain a more realistic magnitude of the extensive margin of imports by accounting for the entry and exit of firms as well as for product turnover within firms. It is found that welfare gains still increase by a factor of 2.5 compared with the Armington baseline case.

Suggested Citation

  • Lukas Mohler, 2014. "Variety Gains and the Extensive Margin of Trade," International Economic Journal, Taylor & Francis Journals, vol. 28(4), pages 543-558, December.
    • Handle: RePEc:taf:intecj:v:28:y:2014:i:4:p:543-558
    DOI: 10.1080/10168737.2014.907629
    as

    Download full text from publisher

    File URL: http://hdl.handle.net/10.1080/10168737.2014.907629
    Download Restriction: Access to full text is restricted to subscribers.
    File URL: https://libkey.io/10.1080/10168737.2014.907629?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    As the access to this document is restricted, you may want to look for a different version below or search for a different version of it.

    Other versions of this item:

    References listed on IDEAS

    as
    1. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2007. "Firms in International Trade," Journal of Economic Perspectives, American Economic Association, vol. 21(3), pages 105-130, Summer.
    2. Robert C. Feenstra & Clinton R. Shiells, 1996. "Bias in U.S. Import Prices and Demand," NBER Chapters, in: The Economics of New Goods, pages 249-276, National Bureau of Economic Research, Inc.
    3. Bernard, Andrew B. & Redding, Stephen & Schott, Peter K., 2006. "Multi-product firms and product switching," LSE Research Online Documents on Economics 3687, London School of Economics and Political Science, LSE Library.
    4. Christian Broda & David E. Weinstein, 2006. "Globalization and the Gains From Variety," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 121(2), pages 541-585.
    5. Paul S. Armington, 1969. "A Theory of Demand for Products Distinguished by Place of Production (Une théorie de la demande de produits différenciés d'après leur origine) (Una teoría de la demanda de productos distinguiénd," IMF Staff Papers, Palgrave Macmillan, vol. 16(1), pages 159-178, March.
    6. Costas Arkolakis & Sharat Ganapati & Marc-Andreas Muendler, 2021. "The Extensive Margin of Exporting Products: A Firm-Level Analysis," American Economic Journal: Macroeconomics, American Economic Association, vol. 13(4), pages 182-245, October.
    7. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    8. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-177, March.
    9. Costas Arkolakis & Arnaud Costinot & Andres Rodriguez-Clare, 2012. "New Trade Models, Same Old Gains?," American Economic Review, American Economic Association, vol. 102(1), pages 94-130, February.
    10. Bruce A. Blonigen & Anson Soderbery, 2019. "Measuring the Benefits of Foreign Product Variety with an Accurate Variety Set," World Scientific Book Chapters, in: Foreign Direct Investment, chapter 15, pages 501-538, World Scientific Publishing Co. Pte. Ltd..
    11. Catia Montagna, 2001. "Efficiency Gaps, Love of Variety and International Trade," Economica, London School of Economics and Political Science, vol. 68(269), pages 27-44, February.
    12. Christian Broda & David E. Weinstein, 2010. "Product Creation and Destruction: Evidence and Price Implications," American Economic Review, American Economic Association, vol. 100(3), pages 691-723, June.
    13. Diewert, W. E., 1976. "Exact and superlative index numbers," Journal of Econometrics, Elsevier, vol. 4(2), pages 115-145, May.
    14. Andrew Bernard & J Bradford Jensen & Stephen Redding & Peter Schott, 2009. "The Margins of U.S. Trade (Long Version)," Working Papers 09-18, Center for Economic Studies, U.S. Census Bureau.
    15. David Hummels & Peter J. Klenow, 2005. "The Variety and Quality of a Nation's Exports," American Economic Review, American Economic Association, vol. 95(3), pages 704-723, June.
    16. Timothy F. Bresnahan & Robert J. Gordon, 1996. "The Economics of New Goods," NBER Books, National Bureau of Economic Research, Inc, number bres96-1.
    17. Peter K. Schott, 2004. "Across-Product Versus Within-Product Specialization in International Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 119(2), pages 647-678.
    18. Mary Amiti & Caroline Freund, 2010. "The Anatomy of China's Export Growth," NBER Chapters, in: China's Growing Role in World Trade, pages 35-56, National Bureau of Economic Research, Inc.
    19. Robert J. Gordon, 2000. "The Boskin Commission Report and its Aftermath," NBER Working Papers 7759, National Bureau of Economic Research, Inc.
    20. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
    21. Krugman, Paul R, 1981. "Intraindustry Specialization and the Gains from Trade," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 959-973, October.
    22. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2011. "Multiproduct Firms and Trade Liberalization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(3), pages 1271-1318.
    23. Michael J. Boskin, 1998. "Consumer Prices, the Consumer Price Index, and the Cost of Living," Journal of Economic Perspectives, American Economic Association, vol. 12(1), pages 3-26, Winter.
    24. Ardelean, Adina & Lugovskyy, Volodymyr, 2010. "Domestic productivity and variety gains from trade," Journal of International Economics, Elsevier, vol. 80(2), pages 280-291, March.
    25. David Hummels & Volodymyr Lugovskyy, 2005. "Trade in Ideal Varieties: Theory and Evidence," NBER Working Papers 11828, National Bureau of Economic Research, Inc.
    26. Juan Carlos Hallak & Peter K. Schott, 2011. "Estimating Cross-Country Differences in Product Quality," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 126(1), pages 417-474.
    27. Sato, Kazuo, 1976. "The Ideal Log-Change Index Number," The Review of Economics and Statistics, MIT Press, vol. 58(2), pages 223-228, May.
    28. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Ulf Lewrick & Lukas Mohler & Rolf Weder, 2016. "Trade in variety and domestic production: Evidence from US manufacturing," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 49(4), pages 1631-1657, November.
    2. repec:wsr:wpaper:y:2013:i:108 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Mohler, Lukas, 2009. "Globalization and the gains from variety: size and openness of countries and the extensive margin," MPRA Paper 17592, University Library of Munich, Germany.
    2. Redding, Stephen J. & Weinstein, David E., 2024. "Accounting for trade patterns," Journal of International Economics, Elsevier, vol. 150(C).
    3. 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.
    4. Amit Khandelwal, 2010. "The Long and Short (of) Quality Ladders," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 77(4), pages 1450-1476.
    5. Konstantins Benkovskis & Ramune Rimgailaite, 2011. "The quality and variety of exports from the new EU member states," The Economics of Transition, The European Bank for Reconstruction and Development, vol. 19(4), pages 723-747, October.
    6. Stephen J. Redding & David E. Weinstein, 2017. "Aggregating from Micro to Macro Patterns of Trade," NBER Working Papers 24051, National Bureau of Economic Research, Inc.
    7. Raphael Auer, 2009. "Product Heterogeneity, Within-Industry Trade Patterns, and the Home Bias of Consumption?," Working Papers 09.05, Swiss National Bank, Study Center Gerzensee.
    8. 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.
    9. Kozo Kiyota, 2010. "Are US Exports Different from China’s Exports? Evidence from Japan’s Imports," The World Economy, Wiley Blackwell, vol. 33(10), pages 1302-1324, October.
    10. Jonathan Eaton & Ana Cecília Fieler, 2019. "The Margins of Trade," NBER Working Papers 26124, National Bureau of Economic Research, Inc.
    11. Raphael A. Auer, 2009. "Taste Heterogeneity, Trade, and the Within-Industry Home Market Effect," Swiss Journal of Economics and Statistics (SJES), Swiss Society of Economics and Statistics (SSES), vol. 145(IV), pages 387-403, December.
    12. 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.
    13. Benkovskis, Konstantins & Wörz, Julia, 2018. "What drives the market share changes? Price versus non-price factors," Structural Change and Economic Dynamics, Elsevier, vol. 45(C), pages 9-29.
    14. Redding, Stephen J. & Weinstein, David E., 2016. "A unified approach to estimating demand and welfare," LSE Research Online Documents on Economics 67681, London School of Economics and Political Science, LSE Library.
    15. Kancs, d'Artis & Persyn, Damiaan, 2019. "Welfare Gains from the Variety Growth," JRC Working Papers in Economics and Finance 2019-01, Joint Research Centre, European Commission.
    16. Ahmad Lashkaripour, 2014. "Markups, International Specialization, and the Gains from Trade," 2014 Papers pla686, Job Market Papers.
    17. Raphael A. Auer, 2013. "Product Heterogeneity, Cross-Country Taste Differences, and the Consumption Home Bias," Working Papers 13.01, Swiss National Bank, Study Center Gerzensee.
    18. Konstantins Benkovskis & Julia Wörz, 2014. "How does taste and quality impact on import prices?," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(4), pages 665-691, November.
    19. Masashige Hamano & Francesco Zanetti, 2018. "On Quality and Variety Bias in Aggregate Prices," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 50(6), pages 1343-1363, September.
    20. Andrew B. Bernard & J. Bradford Jensen & Stephen J. Redding & Peter K. Schott, 2009. "The Margins of US Trade," American Economic Review, American Economic Association, vol. 99(2), pages 487-493, May.

    More about this item

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:taf:intecj:v:28:y:2014:i:4:p:543-558. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Chris Longhurst (email available below). General contact details of provider: http://www.tandfonline.com/RIEJ20 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.