Love of variety and gains from trade

Goût pour la variété et gains à l'échange

Christophe Gouel () and Sebastien Jean
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Christophe 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

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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.

Keywords: international trade; firm heterogeneity; gains from trade; gravity; love of variety; commerce international; firmes hétérogènes; gains à l'échange; gravité; goût pour la variété (search for similar items in EconPapers)
Date: 2023-08-03
Note: View the original document on HAL open archive server: https://hal.inrae.fr/hal-04179396v1
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Published in European Economic Review, 2023, 158, pp.104558. ⟨10.1016/j.euroecorev.2023.104558⟩

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Journal Article: Love of variety and gains from trade (2023)
Working Paper: Love of Variety and Gains from Trade (2021)
Working Paper: Love of Variety and Gains from Trade (2021)
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Persistent link: https://EconPapers.repec.org/RePEc:hal:journl:hal-04179396

DOI: 10.1016/j.euroecorev.2023.104558

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