Product Variety and the Gains from International Trade
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From Zeuthen Lectures

Product Variety and the Gains from International Trade

By Robert C. Feenstra

An examination of the methods to measure the product variety of imports and the gains from trade due to product variety.

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Summary

An examination of the methods to measure the product variety of imports and the gains from trade due to product variety.

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.

Hardcover

$35.00 X | £27.00 ISBN: 9780262062800 144 pp. | 9 in x 6 in 20 figures, 16 tables

Reviews

  • [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

Endorsements

  • 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