The gains from import variety: how much does demand matter

Dahai Fu, Yue Sheng and Xiaocong Xu

Applied Economics, 2023, vol. 55, issue 16, 1830-1844

Abstract: This paper highlights the impact of variable demand on the evaluation of welfare gains from import variety. We use a nested demand structure and construct a model to estimate the gains from import variety, which allows us to relax the assumption of time-invariant demand in previous studies. Our modified approach shows that welfare gains from import variety depends on the demand shifts, in which the gains could be either positive or negative. In particular, China’ s gains from imported varieties between 1995 and 2010 are underestimated 0.94% of 2010 GDP when assuming constant demand. The sources of variety gains also change significantly under the framework of variable demand.

Date: 2023
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DOI: 10.1080/00036846.2022.2099802

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