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Variety Growth and the Gains from Trade

Wik, Marcus LU (2012) NEKP01 20121
Department of Economics
Abstract
In this thesis I estimate the gains from trade produced by an increase in imported product varieties in the Swedish economy. This is done by generating a variety adjusted import price index, following the methodology developed by Feenstra (1994) and Broda and Weinstein (2006). By using an estimate of both the extensive and the intensive margins of variety growth, I generate an upper and a lower bound to the gains from variety. Of these, I argue that the true gains from variety between 1995 and 2011 are most likely to be close to the lower bound of 0.578 percent of GDP. This implies that the Swedish consumer would be willing to pay 0.032 percent of his or her income in order to obtain the new set of product varieties imported each year.

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In this thesis I estimate the gains from trade produced by an increase in imported product varieties in the Swedish economy. This is done by generating a variety adjusted import price index, following the methodology developed by Feenstra (1994) and Broda and Weinstein (2006). By using an estimate of both the extensive and the intensive margins of variety growth, I generate an upper and a lower bound to the gains from variety. Of these, I argue that the true gains from variety between 1995 and 2011 are most likely to be close to the lower bound of 0.578 percent of GDP. This implies that the Swedish consumer would be willing to pay 0.032 percent of his or her income in order to obtain the new set of product varieties imported each year.

In addition to this, I test the hypothesis that the gains from variety are decreasing over time. For the period investigated I am unable to reject this hypothesis. This, I argue, is due to the important roles played by a few large trading partners in Swedish imports. Another important factor may be the inability of the method to capture some of the change in the character of trade which the “Digital Age” has brought with it. (Less)
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author
Wik, Marcus LU
supervisor
organization
course
NEKP01 20121
year
type
H2 - Master's Degree (Two Years)
subject
keywords
Gains from Trade, Gains from Variety, Globalization, Imports, Sweden
language
English
id
3052632
date added to LUP
2012-09-27 11:39:04
date last changed
2012-09-27 11:39:04
@misc{3052632,
  abstract     = {In this thesis I estimate the gains from trade produced by an increase in imported product varieties in the Swedish economy. This is done by generating a variety adjusted import price index, following the methodology developed by Feenstra (1994) and Broda and Weinstein (2006). By using an estimate of both the extensive and the intensive margins of variety growth, I generate an upper and a lower bound to the gains from variety. Of these, I argue that the true gains from variety between 1995 and 2011 are most likely to be close to the lower bound of 0.578 percent of GDP. This implies that the Swedish consumer would be willing to pay 0.032 percent of his or her income in order to obtain the new set of product varieties imported each year.

In addition to this, I test the hypothesis that the gains from variety are decreasing over time. For the period investigated I am unable to reject this hypothesis. This, I argue, is due to the important roles played by a few large trading partners in Swedish imports. Another important factor may be the inability of the method to capture some of the change in the character of trade which the “Digital Age” has brought with it.},
  author       = {Wik, Marcus},
  keyword      = {Gains from Trade,Gains from Variety,Globalization,Imports,Sweden},
  language     = {eng},
  note         = {Student Paper},
  title        = {Variety Growth and the Gains from Trade},
  year         = {2012},
}