Domestic productivity and variety gains from trade |
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Authors: | Adina Ardelean Volodymyr Lugovskyy |
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Affiliation: | aDepartment of Economics, Santa Clara University, 500 El Camino Real, Santa Clara, CA 95053-0385, United States;bGeorgia Institute of Technology, School of Economics, Atlanta, GA 30332-0615, United States |
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Abstract: | We show theoretically and confirm empirically that domestic productivity has a significant impact on the demand for foreign varieties under the assumption that domestic and foreign varieties are imperfect substitutes. In particular, the demand for imported varieties is more elastic for countries with comparative advantage. For an average good facing a median trade barrier, doubling the importer–exporter relative export performance decreases the number of imported varieties by 17%. Our findings suggest that the variety gains estimates could be significantly biased if we ignore the substitutability between imported and domestic varieties. |
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Keywords: | JEL classification: F1 F12 |
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