GTAP Resource 5692
Welfare Gains from the Variety GrowthI d’Artis Kancsa,c,∗, Damiaan Persynb,c,d aEuropean Commission DG Joint Research Centre, I-21027 Ispra Italy bEuropean Commission DG Joint Research Centre, E-41092 Seville, Spain cLICOS, University of Leuven, B-3000 Leuven, Belgium dVIVES, University of Leuven, B-3000 Leuven, Belgium Abstract We estimate the variety gains of trade in Estonia, Latvia and Lithuania following the fall of the iron curtain more than a quarter of a century ago. We apply the methodology of Feenstra(1994); Broda and Weinstein(2006); Ardelean and Lugovskyy(2010) and Soderbery(2015) to domestic and international trade data for the period 1988-1997. Although, there was a decline in the number of local varieties during this period, an increase in the number of import varieties from the EU more than outweighed this decline. The increasing variety of imported goods from EU countries substantially lowered the cost of living, resulting in welfare gains to consumers that range from 0.73% in Latvia to 1.28% of GDP per year in Estonia. Keywords: Variety growth, welfare gains, trade integration, iron curtain. JEL code: C68, F12, F14, F17, R12, R23. January 31, 2019 IThe authors acknowledge helpful comments from Lucian Cernat, Marton Csillag, Dmitry Kulikov, Aleksandra Parteka, Giulia Santangelo, Jan Van Hove and participants of GTAP, EEA and BEA conferences in Dakar, Mannheim and Vilnius, as well as workshop participants at the University of Leuven and European Commission. We are grateful to Anson Soderbery for providing the hybrid LILM elasticity code, Smirnov Sergey Olegovich for granting access to data and Laila Ekharde for providing the necessary concordances.
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