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Using the lens of onshoring versus offshoring, this chapter draws on interviews with executive at large firms with substantial manufacturing presence in the US, finding that interviewees cited a number of reasons for locating production offshore. In addition, the author develops an analytic model of the total cost of a product and how various product characteristics might affect that cost. The model identifies innovativeness as a factor that supports onshoring as well as pointing out that product variety itself is a form of innovation. Three major factors foster onshoring: innovation in products and processes, a low ratio of value to weight, and a high variety of products.

This chapter presents an alternative approach for measuring world gains from trade due to product variety using real gross domestic product (GDP). It explains that the standard of living or real GDP on the expenditure side (RGDE) measures the consumption of countries at a set of common reference prices while real output of countries or real GDP on the output side (RGDO) measures the production of countries at a set of common reference prices. It discusses the calculation of RGDE and RGDO either by using observed export and import prices for countries or by adjusting the export and import prices for product variety.

This introductory chapter discusses the theme of this volume which is about the measurement of product variety of imports and exports and the gains from trade due to product variety. The contents of this volume were delivered as the Zeuthen Lectures at the University of Copenhagen in April 2007 and at the University of Nottingham in April 2008. This volume examines consumer benefits from import variety, producer benefits from export variety, the extensive margin of trade and country productivity and the role of product variety on the measurement of real gross domestic product (GDP).

This chapter provides a more detailed analysis of the measurement of product variety in trade. It shows how to construct the extensive margin of exports using import data for a country from its partners and the world and the extensive margin of imports using export data for a country from its partners and the world. It also describes the application of extensive margin of exports to a study by Robert Feenstra and Hiau Looi Kee in order to estimate the gains from variety growth for 48 countries exporting to the U.S. over 1980 to 2000.

This chapter sums up the key findings of this study on the measurement of product variety of imports and exports and the gains from trade due to product variety. The findings indicate that trade gives results quite similar to real openness because it has a positive real gross domestic product (GDP). The results also challenge the conventional wisdom that small countries gain the most from international trade. This chapter also highlights the importance of trade in promoting higher GDP and real incomes.