Royale with Cheese: Globalization, Tourism, and the Variety of Goods

Matthew Cole and Ronald Davies

Review of Development Economics, 2014, vol. 18, issue 2, 386-400

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, many models predict that global variety decreases as imported varieties drive out local varieties. This is potentially worrisome when consumers care about non-exported foreign varieties as a result of tourism (especially when foreign varieties are highly desired). Since lowering trade costs induces additional firms to export and drives out some non-exported varieties, these modifications result in welfare losses not accounted for in the existing literature. Nevertheless, improvements in non-tourism consumption outweigh any such losses.

Date: 2014
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