Bounded Love of Variety and Patterns of Trade

Philip Sauré

Open Economies Review, 2012, vol. 23, issue 4, 645-674

Abstract: Long-run bilateral trade data exhibit four empirical regularities: (i) countries import only a small fraction of all traded varieties, (ii) per capita income and the number of imported varieties correlate positively, (iii) per capita income and trade shares correlate positively and (iv) world trade shares have markedly increased. Standard theories fail to simultaneously explain these patterns. This paper reconciles theory and data by assuming that the consumer’s marginal utility from varieties is bounded. Given this assumption, consumers do not purchase foreign varieties that bear high transport costs. With increasing incomes, however, consumers include more of the latter varieties, which generates the four patterns above. Copyright Springer Science+Business Media, LLC 2012

Keywords: Marginal utility; Variety; F10; F13 (search for similar items in EconPapers)
Date: 2012
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Citations: View citations in EconPapers (22)

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Working Paper: Bounded Love of Variety and Patterns of Trade (2009)
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Persistent link: https://EconPapers.repec.org/RePEc:kap:openec:v:23:y:2012:i:4:p:645-674

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DOI: 10.1007/s11079-011-9207-3

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