Trade and Diversity: Is There a Case for 'Cultural Protectionism?'

German Economic Review, 2006, vol. 7, pages 403-418

Abstract: In contrast to the predictions of standard models of international trade, globalization critics are claiming that trade destroys diversity. We demonstrate that with endogenous sunk costs, trade integration in horizontally differentiated industries can indeed lead to a fall in diversity. Consumers are faced with a tradeoff between gains in real income and a loss in diversity, so that the impact on welfare is ambiguous. However, it is possible through fiscal policies to replicate pre-trade choices and still realize gains in real income. Thus, calls for a 'cultural protectionism' are not justified. Copyright Verein für Socialpolitik and Blackwell Publishing Ltd. 2006.

Date: 2006

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German Economic Review is edited by Bernhard Felderer, Joseph F. Francois, Ivo Welch, Urs Schweizer and David E. Wildasin

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