Revisiting the Gains from Trade in EMDEs

Investment Rating - The report does not explicitly provide an investment rating for the industry under review. Core Insights - The paper estimates the welfare impact of the growth of imported goods variety in 28 countries in East Africa and East Asia from 1995 to 2021, revealing that African countries gained an average of 5.47% of their GDP (0.20% annually), while Asian countries (excluding Bhutan) gained 3.46% (0.13% annually) [3][16][18] - The findings emphasize that the creation and extension of trade linkages can significantly enhance welfare, particularly for small and transitioning economies, which is often overlooked in discussions about globalization and economic integration [17][18] - The study provides a comprehensive analysis of the gains from import variety, utilizing over 100,000 estimated elasticities of substitution to construct an exact price index for measuring welfare gains [3][9][54] Summary by Sections Introduction - The paper discusses the benefits of increased variety in imported goods, which leads to lower unit costs and welfare gains, contrasting with traditional studies that focus on productivity and efficiency improvements [8][9] Data and Descriptive Analysis - The analysis uses trade data from BACI covering 27 years, revealing significant growth in both the value and variety of imports across the selected countries [21][22] - The average number of imported products increased by 31% for the sample countries, with notable increases in total varieties, particularly in African countries [26][27] Methodology - The report follows the methodology established by Feenstra and Broda & Weinstein to derive an exact price index for measuring welfare gains from import variety [31][39] - The estimation of elasticities of substitution is crucial for understanding the responsiveness of demand to price changes among different varieties [50][56] Results - The average elasticity of substitution across the 28 countries is 13.0, with a median of 4.1, indicating significant potential for gains from variety due to the high differentiation of goods [56] - The report highlights that the average welfare gain from newly imported varieties from 1995 to 2021 amounts to 5.49% of GDP, with African countries showing higher gains compared to Asian countries [16][54]