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New product varieties and the measurement of international prices

1994; American Economic Association; Volume: 84; Issue: 1 Linguagem: Inglês

1944-7981

Robert C. Feenstra,

Economics of Agriculture and Food Markets

The high income elasticity of demand often estimated for U.S. imports may be a spurious result of omitting new product varieties from the import price indexes. The purpose of this paper is to demonstrate how to incorporate new product varieties into a constant-elasticity-of-substitution aggregate of import prices. This method is applied to U.S. imports of six disaggregate manufactured goods. It is shown that the corrected indexes are able to account for part--but not all--of the high income elasticities. (JEL C43, F14)