International trade and investment.

• Position: Bureau News

The NBER's Program on International Trade and Investment met in Cambridge on April l and 2. Research Associate Bruce Blonigen, University of Oregon, organized the meeting. The program was:

David Hummels, NBER and Purdue University, and Volodymyr Lugovskyy, University of Memphis, "Trade in Ideal Varieties: Theory and Evidence"

James Harrigan, Federal Reserve Bank of New York, "Airplanes and Comparative Advantage"

Linda S. Goldberg and Cedric Tille, Federal Reserve Bank of New York, "Vehicle Currency Use m International Trade"

Doireann Fitzgerald, University of California, Santa Cruz, "A Gravity View of Exchange Rate Disconnect" (See "International Finance and Macroeconomics" earlier in this issue)

Gianmarco I.P. Ottaviano, Universita' di Bologna and CEPR, and Giovanni Peri, NBER and University of California. Davis, "Gains from 'Diversity': Theory and Evidence from Immigration in U.S Cities"

Diego Puga and Daniel Trefler, NBER and University of Toronto. "International Trade and Domestic Institutions: The Medieval Response to Globalization"

Joshua Aizenman. NBER and University of California, Santa Cruz, and Ilan Noy, University of Hawaii, "Endogenous Financial and Trade Openness: Efficiency and Political Economy Considerations"

Raymond Fisman, NBER and Columbia University, Peter Moustakerski, Booz Allen Hamilton; and Shang-Jin Wei, NBER and International Monetary Fund; "Offshoring Tariff Evasion: Evidence from Hong Kong as Entrepot Trader"

Models with constant-elasticity of substitution preferences are commonly used in the international trade literature because they provide a tractable way to handle product differentiation in general equilibrium. However, this tractability comes at the cost of generating a set of counter-factual predictions regarding cross-country variation in export and import variety, output variety, and prices. Hummels and Lugovskyy ask whether a generalized version of Lancaster's "ideal variety" model can better match the facts. In this model, entry causes crowding in variety space, so that the marginal utility of new varieties falls as market size grows. Crowding is partially offset by income effects, as richer consumers will pay more for varieties closer matched to their ideal types. The authors show theoretically and confirm empirically that declining marginal utility of new varieties results in: a higher own-price elasticity of demand (and lower prices) in large countries and a lower own-price elasticity of demand (and...