Project

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International Trade in Variety and the Domestic Market

Applicant Weder Rolf
Number 124975
Funding scheme Project funding (Div. I-III)
Research institution Wirtschaftswissenschaftliche Fakultät Universität Basel
Institution of higher education University of Basel - BS
Main discipline Economics
Start/End 01.10.2009 - 30.09.2012
Approved amount 182'516.00
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Keywords (7)

International Trade; New Trade Theory; Trade in Varieties; Trade in Intermediates; Trade in Product Variety; Gains from Trade in Variety; Domestic Competition

Lay Summary (English)

Lead
Lay summary
The challenge international trade theory is continuously confronted with is to determine the gains from trade. The importance of product variety as a source of the gains from trade has been emphasized empirically by Grubel and Lloyd (1975) and captured theoretically by Krugman (1979, 1980). However, based on a new methodology by Feenstra (1994), it has become possible to empirically estimate the gains from trade in variety as shown by Broda and Weinstein (2006). This literature is developing dynamically, also benefitting from the recent theoretical contributions by Melitz (2003) allowing for heterogeneity among firms and by Feenstra and Ma (2007) focusing on multiproduct firms.Our research project aims to contribute to this literature in three ways. First, we want to analyze how international trade affects the variety of domestic production and what this implies for the total variety of products available to the consumer. Second, we plan to investigate the relationship between international trade in intermediates and the productivity of domestic firms. Third, we want to study how the access to an increased variety of finished and intermediate products from abroad affects the variety of exports of firms and countries. In all of this work we focus on empirical analyses. Based on this project we not only hope to contribute to the understanding of the above mentioned aspects discussed in the current literature. We are convinced that the project allows and requires us also to re-assess what we consider to be a product variety. In addition, we expect that our research also helps understanding how international trade affects the degree of domestic competition of certain types of countries. For example, are small countries (such as Switzerland) likely to show a lower degree of competition as they tend to import a smaller variety of products? Or, is there more competition because these countries are more open economies?In a general sense, the project also contributes to the discussion of the effects of globalization on individual countries and sectors. Thereby, we focus on the question how international trade affects the variety of products and services.
Direct link to Lay Summary Last update: 21.02.2013

Responsible applicant and co-applicants

Employees

Publications

Publication
The Gains from Variety in the European Union
Mohler Lukas and Michael Seitz (2012), The Gains from Variety in the European Union, in Review of World Economics, 148, 475-500.
Variety Gains from Trade in Switzerland
Mohler Lukas (2011), Variety Gains from Trade in Switzerland, in Swiss Journal of Economics and Statistics, 147(1), 45-70.

Collaboration

Group / person Country
Types of collaboration
Robert C. Feenstra United States of America (North America)
- in-depth/constructive exchanges on approaches, methods or results

Scientific events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
Annual Conference of the European Trade Study Group 09.09.2012 Leuven
Annual Meeting of the Verein für Socialpolitik 09.09.2012 Goettingen
Annual Meeting of the Canadian Economics Association 07.06.2012 Calgary
Annual Conference of the European Trade Study Group 01.09.2010 Lausanne
Annual Conference of the European Economics Association 02.08.2010 Glasgow
Annual Conference of the International Trade and Finance Association 01.06.2010 Las Vegas


Communication with the public

Communication Title Media Place Year
Print (books, brochures, leaflets) Wie stark profitieren Länder wie die Schweiz vom internationalen Handel in differenzierten Gütern? German-speaking Switzerland 01.01.2010

Abstract

International Trade in Variety and the Domestic MarketThe challenge international trade theory is continuously confronted with is to determine the gains from trade. The importance of product variety as a source of the gains from trade has been emphasized empirically by Grubel and Lloyd (1975) and captured theoretically by Krugman (1979, 1980). However, based on a new methodology by Feenstra (1994), it has become possible to empirically estimate the gains from trade in variety as shown by Broda and Weinstein (2006). This literature is developing dynamically, also benefitting from the recent theoretical contributions by Melitz (2003) allowing for heterogeneity among firms and by Feenstra and Ma (2007) focusing on multiproduct firms.Our research project aims to contribute to this literature in three ways. First, we want to analyze how international trade affects the variety of domestic production and what this implies for the total variety of products available to the consumer. Second, we plan to investigate the relationship between international trade in intermediates and the productivity of domestic firms. Third, we want to study how the access to an increased variety of finished and intermediate products from abroad affects the variety of exports of firms and countries. In all of this work we focus on empirical analyses.Based on this project we not only hope to contribute to the understanding of the above mentioned aspects discussed in the current literature. We are convinced that the project allows and requires us also to re-assess what we consider to be a product variety. Though a variety is largely defined as a product imported from or exported to a different country in the recent empirical literature, the approach by Feenstra (1994) appears to be open for an extended interpretation that would also be applicable to the domestic production of non-traded products. In addition, we expect that our research also helps understanding how international trade affects the degree of domestic competition: are small countries likely to show a lower degree of competition as they are likely to import a smaller variety of products - or is there more competition because these countries are ''more open economies''? Our research team at the University of Basel has developed some expertise in this field on which we plan to build on. The project would allow us to further develop our knowledge in this dynamic area. Our contributions in this field include the work by Weder (1995a, 2003) on home-market effects and by Benarroch and Weder (2006) on the role of trade in intermediate product variety in producing total output. They include Mohler (2008a, 2008b) on the empirical analysis of the gains from variety for Switzerland and Lewrick (2008a) on international trade in variety and quality as well as on firm heterogeneity.
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