Import Variety and Welfare Gain in China

This paper provides the first comprehensive measure of how much China has gained from import variety from 1997 to 2008, by adopting a simplified trade restrictiveness index. Utilizing the most disaggregated product-level import data available for China, the paper finds that the welfare gain as a result of new import variety amounts to 4.9% of gross domestic product (GDP), or 0.4% annually, after controlling for the prevalent imported intermediate inputs for processing. Furthermore, the empirical strategy is extended to investigate specific contributions of different countries, and finds that China gains the most from Japan, followed by Canada and Germany. Countries with abundant natural resources, such as Indonesia, Russia, Iran, and Australia, also contribute significantly to China's welfare.