Product variety, the cost of living, and welfare across countries Alberto Cavallo, Robert C. Feenstra and Robert Inklaar
By: Cavallo, Alberto
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Contributor(s): Feenstra, Robert C | Inklaar, Robert.
Material type: 
ArticleSubject(s): CONSUMO | RIQUEZA | COSTE DE LA VIDA | NIVEL DE VIDA | PRECIOS | BIENESTAR SOCIAL | MODELOS ECONOMETRICOS
In:
American Economic Journal : Macroeconomics v. 15, n. 4, October 2023, p. 40-66Summary: We use the structure of the Melitz (2003) model to compute the cost of living and welfare across 47 countries, and compare these to conventional measures of prices and real consumption from the International Comparisons Project (ICP). The cost of living is inferred without directly using ICP prices of traded goods and instead relying on output prices, openness, domestic trade costs, and product variety measured by the counts of barcodes or firms. We find that welfare relative to the United States is lower than indicated by real consumption for most countries, but similar in China and Japan and similar or higher in some European countries.
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We use the structure of the Melitz (2003) model to compute the cost of living and welfare across 47 countries, and compare these to conventional measures of prices and real consumption from the International Comparisons Project (ICP). The cost of living is inferred without directly using ICP prices of traded goods and instead relying on output prices, openness, domestic trade costs, and product variety measured by the counts of barcodes or firms. We find that welfare relative to the United States is lower than indicated by real consumption for most countries, but similar in China and Japan and similar or higher in some European countries.
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