Revisiting the Gains from Trade in EMDEs

Following the gains from variety literature, this paper estimates the welfare impact of growth of the variety of imported goods in 28 countries in East Africa and East Asia and compares the results. While estimating the gains from variety, the elasticities of substitution are estimated for each country at the Harmonized System six-digit level of disaggregation. More than 100,000 elasticities are estimated, and the paper constructs an exact price index to measure the welfare gains from variety growth. The findings show that from 1995 to 2021, African countries gained on average 5.47 percent of their gross domestic product (0.20 percent annually), and Asian countries excluding Bhutan gained 3.46 percent (0.13 percent annually). Bhutan, Mongolia, Rwanda, and Mozambique are among the countries with the highest gains over the sample period. The evidence indicates that the creation and extension of trade linkages can be a source of welfare, particularly for small and transitioning economies, a point that is occasionally overlooked in discussions about the positive effects of globalization and economic integration. The estimated elasticities may also be useful for other studies