Trade, Product Variety and Welfare: A Quantitative Assessment for the Transition Economies in Central and Eastern Europe

We calculate welfare gains of trade liberalization in the Central and East European transitioneconomies, following the approach of Romer (1994), who emphasized that proper modeling ofthe impact of trade restrictions on the number of available product varieties is crucial toquantifying the welfare impact of trade liberalization. The empirical work relies on directmeasures of product variety calculated from 5-digit trade data. Although the issue is far fromsettled, the emerging conclusion is that freer trade has boosted welfare.