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Hardcover | $35.00 X | £27.95 | 144 pp. | 6 x 9 in | 20 figures, 16 tables | August 2010 | ISBN: 9780262062800
eBook | $24.00 Short | August 2010 | ISBN: 9780262289948
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Product Variety and the Gains from International Trade


The application of the monopolistic competition model to international trade by Elhanan Helpman, Paul Krugman, and Kelvin Lancaster was one of the great achievements of international trade theory in the 1970s and 1980s. Monopolistic competition models have required new empirical methods to implement their theoretical insights, however, and in this book Robert Feenstra describes methods that have been developed to measure the product variety of imports and the gains from trade that are due to product variety.

Feenstra first considers the consumer benefits from having access to new import varieties of differentiated products, and examines a recent method to estimate the elasticity of substitution (the extent of differentiation across products) and to use that information to construct the gains from import variety. He then examines claims of producer benefit from export variety, arguing that the self-selection of the more productive firms (as the low-productivity firms exit the market) can be interpreted as a gain from product variety. He makes use of a measurement of product variety known as the extensive margin of exports and imports. Finally, he considers an alternative approach to quantifying the gains due to product variety by comparing real GDP calculated with and without the extensive margin of trade.

About the Author

Robert C. Feenstra is Professor of Economics and C. Bryan Cameron Distinguished Chair in International Economics at the University of California, Davis. He directs the International Trade and Investment Program at the NBER and is the author of Advanced International Trade: Theory and Evidence and Offshoring in the Global Economy: Microeconomic Structure and Macroeconomic Implications (MIT Press, 2010).

Table of Contents

  • Product Variety and the Gains from International Trade
  • Zeuthen Lecture Book Series
  • Karl Gunnar Persson, editor
  • Modeling Bounded Rationality
  • Ariel Rubinstein
  • Forecasting Non-stationary Economic Time Series
  • Michael P. Clements and David E. Hendry
  • Political Economics: Explaining Economic Policy
  • Torsten Persson and Guido Tabellini
  • Wage Dispersion: Why Are Similar Workers Paid Differently
  • ?
  • Dale T. Mortensen
  • Competition and Growth: Reconciling Theory and Evidence
  • Philippe Aghion and Rachel Griffith
  • Product Variety and the Gains from International Trade
  • Robert C. Feenstra
  • Product Variety and the Gains from International Trade
  • Robert C. Feenstra
  • The MIT Press
  • Cambridge, Massachusetts
  • London, England
  • © 2010
  • Massachusetts Institute of Technology
  • All rights reserved. No part of this book may be reproduced in any form by any electronic or mechanical means (including photocopying, recording, or information storage and retrieval) without permission in writing from the publisher.
  • For information about special quantity discounts, please email special_sales@mitpress
  • This book was set in Palatino by Toppan Best-set Premedia Limited.
  • Printed and bound in the United States of America.
  • Library of Congress Cataloging-in-Publication Data
  • Feenstra, Robert C.
  • Product variety and the gains from international trade / Robert C. Feenstra.
  •  p. cm. — (Zeuthen lecture book series)
  • Includes bibliographical references and index.
  • ISBN 978-0-262-06280-0 (hbk. : alk. paper) 1. International trade—Econometric models. 2. Imports—Econometric models. 3. Exports—Econometric models.  4. Commercial products—Econometric models. I. Title.
  • HF1379.F444 2010
  • 382.01'5195—dc22
  • 2009054150
  • 10 9 8 7 6 5 4 3 2 1
  • Contents
  • Series Foreword
  • vii
  • Preface
  • ix
  • 1 Introduction
  • 1
  • 2 Consumer Benefits from Import Variety
  • 7
  • 3 Producer Benefits from Export Variety
  • 39
  • 4 The Extensive Margin of Trade and Country Productivity
  • 57
  • 5 Product Variety and the Measurement of Real GDP
  • 83
  • 6 Conclusions
  • 109
  • Notes
  • 119
  • References
  • 123
  • Index
  • 129


“[I]t is one of the most important monographs produced over the last two decades and will be required reading, not only for anyone interested in the gains from trade but also for anyone interested in measuring prices, welfare, and productivity when the set of goods is not constant over time.”—Journal of Economic Literature


“This book is a brilliant exploration of the implications of recent theories of international trade for one of the most important questions in the field: how large are the gains from trade? Feenstra takes the models apart to shed light on the basic mechanisms at play and then masterfully uses the data to understand their quantitative significance.”
Andrés Rodríguez-Clar, Professor of Economics, Pennsylvania State University
“This book provides the most comprehensive treatment to date of the role of ‘product variety’ in international trade. Starting with an overview of the main theoretical concepts, Robert Feenstra takes the reader step by step through the measurement and identification challenges of empirical work that tries to quantify the gains from variety. The book is a must-read not only for graduate students, but for anyone who is interested in familiarizing herself with the latest developments in international trade.”
Penny Goldberg, Professor of Economics, Princeton University