Globalization and the Gains from Variety (QJE 2006)

Transcription

1 Globalization and the Gains from Variety (QJE 2006) Christian Broda & David Weinstein LMU July, 2011

2 Outline Motivation Related Literature Data Empirical Strategy Results Robustness Conclusion

3 Motivation New Trade Theory, Krugman (1979, 1980, 1981) Two positive effects on consumer welfare: increased competition increased product variety Emphasizes the Extensive Margin (More trade of different products) Contribution: First paper to structurally estimate the gains from variety for the United States

4 Motivation Data: US Imports Imports increased from 213 billion USD to 1,434 billion USD (in 2000 constant USD) Share of imports of goods in U.S. GDP increased from 4.8% to 11.7% Number of imported varieties increased from 71,420 to 259,215 (HS-6 level)

5 Related Literature Prior studies Hausman (AER 1981) "Exact Consumer s and Deadweight Loss" Feenstra (AER 1994) "New Product Varieties and the Measurement of International Prices" Romer (NBER 1994) "Capital Labor and Productivity" Klenow and Rodriguez, C. (WP 1997) "Quantifying Variety Gains from Trade Liberalizations"

6 Related Literature Subsequent studies Adina and Lugovskyy (JIE 2010) "Domestic Productivity and Variety Gains from Trade" Bloning and Soderby (JIE 2009) "Measuring the Benefits of Product Variety with an Accurate Variety Set" Mohler and Seitz (2010) "The Gains from Variety in the European Union"

7 Related Literature Product Variety and Production Feenstra and Kee (JIE 2008) "Export Variety and Country Productivity: Estimating the Monopolistic Competition Model with Endogenous Productivity" Goldberg et al. (QJE 2010) "Imported Intermediate Inputs and Domestic Product Growth: Evidence from India" Manova and Zhang (QJE forthcoming) "Export Prices across Firms and Destinations"

8 Data Data description and definitions Highly disaggregated U.S. import data ( digit TSUSA, 10-digit HTS ( )) Classifies between 12,822 and 16,390 product categories (e.g. Beer made from malt more or less than 10 liter, approx. 25 different wines (Bordeaux, Toscana etc.)) Definitions A product (good) is defined as one product category according to the TSUSA (HTS) classification (red wine) A (product) variety is defined as a particular product category from a particular country (French red wine)

9 Descriptive Statistics Table: U. S. Imports 1990 to 2001 Number Median no. Average no. Total number Share of of HTS exporting exporting varieties U. S. imports Year categories countries countries (country-good) in year All 1990 goods , , All 2001 goods , , Common 1990 to , , Common 1990 to , , not in , , not in , ,

10 Descriptive Statistics

11 Descriptive Statistics

12 Empirical Strategy Effects on consumer Welfare

13 Empirical Strategy Effects on consumer Welfare CES Utility function (goods are differentiated across countries, Armington (1969)) M g,t = Price Index for a single imported good ( ) 1 d g,c,t M 1 σ (1 σg ) g g,c,t ;σ g > 1 (1) c C P g ( p g,t, p g,t 1, x g,t, x g,t 1,I g ) = φ g,t(i g, d g ) φ g,t 1 (I g, d g ) (2)

14 Empirical Strategy Effects on consumer Welfare CES Utility function (goods are differentiated across countries, Armington (1969)) M g,t = Price Index for a single imported good ( ) 1 d g,c,t M 1 σ (1 σg ) g g,c,t ;σ g > 1 (1) c C P g ( p g,t, p g,t 1, x g,t, x g,t 1,I g ) = φ g,t(i g, d g ) φ g,t 1 (I g, d g ) (2) Price index in the case of a CES utility function ( ) wg,c,t pg,c,t P g ( p g,t, p g,t 1, x g,t, x g,t 1,I g ) = (3) c I g p g,c,t 1

15 Empirical Strategy Price Index for a single good with new and disappearing varieties ( ) wg,c,t ( ) 1 pg,c,t λg,t σg 1 Π g ( p g,t, p g,t 1, x g,t, x g,t 1,I g ) = c I g p g,c,t 1 λ g,t 1 (4) where λ g,r = cεi g p g,c,r x g,c,r cεig,r p g,c,r x g,c,r ; r = t,t 1 Aggregated price index for a set of goods ( ) wg,t /(σ λg,t g 1) Π( p t, p t 1, x t, x t 1,I) = CIPI(I) λ g G g,t 1 (5)

16 Empirical Strategy Estimation of the Elasticity of Substitution Simple system of import demand and export supply equations where Y g,c,t = θ 1,g X 1,g,c,t + θ 2,g X 2,g,c,t + u g,c,t (6) θ 1,g = ρ g 2ρ g 1 (1 ρ g )(σ g 1) 2, θ 2,g = (1 ρ g )(σ g 1) u g,c,t = ε g,c,tδg,c,t 1 ρ g (7)

17 Empirical Strategy Estimation of the Elasticity of Substitution Simple system of import demand and export supply equations where Y g,c,t = θ 1,g X 1,g,c,t + θ 2,g X 2,g,c,t + u g,c,t (6) θ 1,g = ρ g 2ρ g 1 (1 ρ g )(σ g 1) 2, θ 2,g = (1 ρ g )(σ g 1) u g,c,t = ε g,c,tδg,c,t 1 ρ g (7) GMM with fixed effects Required assumptions: Import demand and export supply shocks are uncorrelated; Solutions are unique

18 Results Elasticity of Substitution - Descriptive Statistics

19 Results Elasticity of Substitution - Industries

20 Results Lambda Ratios - Descriptive Statistics

21 Results Endpoint Ratio - Descriptive Statistics

22 Results Gains from Variety - Interpretation Assumption: Krugman Style Economy Use import Share to calculate the compensating variation Consumers are willing to spend 2.6 percent of their income to get access to the larger set of varieties Implies 0.1 percent of GDP per annum

23 Results Extensions and Robustness Gains increase when simple count data for varieties are used instead of lambda ratios (6.28 percent) Results are robust to the use of alternative specifications of the elasticity of substitution CES framework imposes relative strong assumptions and is not flexible Show that results also hold if a quadratic utility function is used

24 Concluding Remarks First empirical study that structurally evaluates the effects of an increased product set on consumer welfare Show that import price indices are substantially biased if new and disappearing varieties are neglected Shows that U.S. consumers benefited substantially from newly imported products and product varieties In a Krugman style economy consumer welfare has increased by 2.6 percent of GDP during the period from 1971 to 2001