BOFIT Discussion Papers, Institute for Economies in Transition, Bank of Finland
No 17/2003:
Trade, product variety and welfare: A quantitative assessment for the transition economies in Central and Eastern Europe
Michael Funke ()
and Ralf Ruhwedel ()
Abstract: We calculate welfare gains of trade liberalization in the
Central and East European transition economies, following the approach of
Romer (1994), who emphasized that proper modeling of the impact of trade
restrictions on the number of available product varieties is crucial to
quantifying the welfare impact of trade liberalization. The empirical work
relies on direct measures of product variety calculated from 5-digit trade
data. Although the issue is far from settled, the emerging conclusion is
that freer trade has boosted welfare.
Keywords: trade liberalization; product variety; welfare; transition economies; (follow links to similar papers)
JEL-Codes: D60; F14; F15; (follow links to similar papers)
24 pages, December 29, 2003
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