GLOBALIZATION AND THE GAINS FROM VARIETY

David Weinstein and Christian Broda

No 327, Econometric Society 2004 Latin American Meetings from Econometric Society

Abstract: Since the seminal work of Krugman (1979), product variety has played a central role in models of trade and growth. In spite of the general use of love-of-variety models, there has been no systematic study of how the import of new varieties has contributed to national welfare gains in the United States. In this paper we show that the unmeasured growth in product variety from US imports has been an important source of gains from trade over the last three decades (1972-2001). Using extremely disaggregated data, we show that the number of imported product varieties has increased by a factor of four. We also estimate the elasticities of substitution for each available category at the same level of aggregation, and describe their behavior across time and SITC-5 industries. Using these estimates we develop an exact price index and find that the upward bias in the conventional import price index is approximately 1.2 percent per year. The magnitude of this bias suggests that the welfare gains from variety growth in imports alone are 2.8 percent of GDP

Keywords: Gains from trade; Love-of-variety models; US Trade; Elasticities of Substitution. (search for similar items in EconPapers)
JEL-codes: E3 F1 (search for similar items in EconPapers)
Date: 2004-08-11
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (129)

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http://repec.org/esLATM04/up.28951.1082602312.pdf (application/pdf)

Related works:
Journal Article: Globalization and the Gains From Variety (2006)
Working Paper: Globalization and the Gains from Variety (2004)
Working Paper: Globalization and the gains from variety (2004)
Working Paper: Globalization and the Gains from Variety (2004)
Working Paper: Globalization and the Gains from Variety (2004)
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Persistent link: https://EconPapers.repec.org/RePEc:ecm:latm04:327

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