Royale with Cheese: Globalization, Tourism, and the Variety of Goods
15 Pages Posted: 3 Apr 2014
Date Written: May 2014
The key result of the so‐called “New Trade Theory” is that countries gain from falling trade costs by an increase in the number of varieties available to consumers. Though the number of varieties in a given country rises, many models predict that global variety decreases as imported varieties drive out local varieties. This is potentially worrisome when consumers care about non‐exported foreign varieties as a result of tourism (especially when foreign varieties are highly desired). Since lowering trade costs induces additional firms to export and drives out some non‐exported varieties, these modifications result in welfare losses not accounted for in the existing literature. Nevertheless, improvements in non‐tourism consumption outweigh any such losses.
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