Globalization and the gains from variety: size and openness of countries and the extensive margin

Lukas Mohler

MPRA Paper from University Library of Munich, Germany

Abstract: With the seminal work of Feenstra (1994) and its application to the United States by Broda and Weinstein (2006) the gains from variety through trade as suggested by Krugman (1979) have become quantifiable. My paper adds to this literature in different respects: On the theoretical side, the Feenstra ratios are reinterpreted to allow for unobserved growth at the extensive margin. Also, the gains from variety are decomposed regarding countries of origin and industries. On the empirical side, the gains from variety are calculated for the United States and Switzerland, a small open economy. Analyzing the empirical results for these countries as well as data from other OECD economies, it is then argued that size and openness of countries as well as the (unobserved) true growth at the extensive margin are important factors in determining the welfare gains from variety.

Keywords: Welfare Gains from Trade; Trade in Variety; Small Open Economy (search for similar items in EconPapers)
JEL-codes: F12 F14 (search for similar items in EconPapers)
Date: 2009-07
New Economics Papers: this item is included in nep-opm
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Citations: View citations in EconPapers (2)

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