The gains from variety in the European Union

Over the last decade, European Union members have experienced a steady increase in imports. This increase was accompanied by a strong growth in the number of imported goods and trading partners, suggesting positive welfare gains for consumers via an extended set of consumption possibilities, as pointed out in the "New Trade Theory". In this paper, we apply the methodology developed by Feenstra (Am Econ Rev 84(1):157-177, 1994) and Broda and Weinstein (Q J Econ 121(2):541-585, 2006) to structurally estimate the gains from imported variety for the 27 countries of the European Union using highly disaggregated trade data at the CN-8 level from Eurostat for the period from 1999 to 2008. Our results show that, within the European Union, especially "newer" and smaller member states exhibit high gains from newly imported varieties. Furthermore, we find that the majority of the gains from variety for consumers stems from intra-European Union trade.