Royale with Cheese: The Effect of Globalization on the Variety of Goods

Matthew Cole and Ronald Davies

The Institute for International Integration Studies Discussion Paper Series from IIIS

Abstract: The key result of the so-called “New Trade Theory” is that countries gain from falling trade costs by an increase in the number of varieties available to consumers. Though the number of varieties in a given country rises, it is also true that global variety decreases from increased competition wherein imported varieties drive out some local varieties. This second result is a major issue for anti-trade activists who criticize the move towards free trade as promoting homogenization” or “Americanization” of varieties across countries. We present a model of endogenous entry with heterogeneous firms which models this concern in two ways: a portion of a consumer’s income is spent overseas (i.e. tourism) and an existence value (a common tool in environmental economics where simply knowing that a species exists provides utility). Since lowering trade costs induces additional varieties to export and drives out some non-exported varieties, these modifications result in welfare losses not accounted for in the existing literature. Nevertheless, it is only through the existence value that welfare can fall as a result of declining trade barriers. Thus, for these criticisms of globalization to dominate, it must be that this loss in the existence value outweighs the direct benefits from consumption.

Keywords: firm heterogeneity; tourism (search for similar items in EconPapers)
JEL-codes: F12 F14 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2010-07
New Economics Papers: this item is included in nep-int and nep-tur
References: Add references at CitEc
Citations: View citations in EconPapers (2)

Downloads: (external link)
https://www.tcd.ie/triss/assets/PDFs/iiis/iiisdp329.pdf

Related works:
Working Paper: Royale with cheese: the effect of globalization on the variety of goods (2010)
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:iis:dispap:iiisdp329

Access Statistics for this paper

More papers in The Institute for International Integration Studies Discussion Paper Series from IIIS 01. Contact information at EDIRC.
Bibliographic data for series maintained by Maeve (triss@tcd.ie).