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Globalization and the Gains from Variety

David Weinstein () and Christian Broda

No 508, Econometric Society 2004 North American Summer 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 – double the estimated impact due to hedonic adjustments on the CPI. 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; Imperfect competition; New goods bias; Variety Growth (search for similar items in EconPapers)
JEL-codes: F02 F12 F14 (search for similar items in EconPapers)
Date: 2004-08-11
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http://repec.org/esNASM04/up.18756.1075573302.pdf (application/pdf)

Related works:
Journal Article: Globalization and the Gains From Variety (2006) Downloads
Working Paper: GLOBALIZATION AND THE GAINS FROM VARIETY (2004) Downloads
Working Paper: Globalization and the gains from variety (2004) Downloads
Working Paper: Globalization and the Gains from Variety (2004) Downloads
Working Paper: Globalization and the Gains from Variety (2004) Downloads
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