Productivity Growth, Bounded Marginal Utility, and Patterns of Trade

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dc.contributor.author SAURE, Philip
dc.date.accessioned 2007-12-17T15:35:39Z
dc.date.available 2007-12-17T15:35:39Z
dc.date.issued 2007
dc.identifier.issn 1725-6704
dc.identifier.uri http://hdl.handle.net/1814/7689
dc.description.abstract The workhorse model of the New Trade Theory fails to explain four strong and central patterns of postwar trade data. These patterns are, first, the massive increase in trade volumes, second, the small fraction of traded varieties the average country imports, third the correlation between per capita income growth and trade growth, and fourth, the correlation between trade growth and growth in the number of source countries per imported good. The present paper shows that a small and reasonable change in the demand structure can reconcile the model with the data. It departs from standard theory by assuming that consumers derive bounded marginal utility from varieties. This implies that consumers purchase only the cheaper share of varieties and that expensive foreign varieties bearing high transport costs are not imported. Technological progress which increases per capita consumption of the varieties in the consumption basket decreases marginal utility derived from each of them and induces consumers to extend their consumption to more expensive varieties produced at more distant locations. This additional margin along which trade can expand induces a substantial increase in the trade share as productivity grows. Productivity change is thus identified as a joint determinant of trade shares, the number of source countries per good, and per capita income, explaining the trends and correlations in the data. en
dc.language.iso en en
dc.publisher European University Institute
dc.relation.ispartofseries EUI ECO en
dc.relation.ispartofseries 2007/56 en
dc.subject Trade Volume en
dc.subject Source Country en
dc.subject F1 en
dc.subject F4 en
dc.title Productivity Growth, Bounded Marginal Utility, and Patterns of Trade en
dc.type Working Paper en
dc.neeo.contributor SAURE|Philip|aut|
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