Marina Adshade is an economist at Dalhousie University. She writes regularly on the economics of sex and love on her blog Dollars and Sex
There is a Belgium restaurant that I like to visit in Halifax that has a beer menu with over 150 beers from around the world.
That kind of selection is one of the benefits of globalization -- it has given us access to a much broader variety of goods. The happiness that we get from being able to choose from a larger assortment of goods is often overlooked when we consider the welfare gains from trade, which tend to be small otherwise.
An interesting new paper by David Jacks (Simon Fraser University) and Bo Chen (Shanghai University of Finance and Economics) finds that the welfare gained from the increased variety of goods in Canada as the result of freer trade is large (28 per cent between 1988 and 2007) and that about 25 per cent of that gain comes from a surprising source -- increased immigration.
Immigrants to Canada bring with them a superior knowledge of, and preference for, consumer goods available in their home countries. Thus, while the immigrant population creates a demand for a greater variety of goods, they also bring a familiarity of foreign market conditions and regulatory environments -- reducing the cost of importing and increasing the supply of goods arriving from a variety of world regions.
The paper estimates that a 1 per cent increase in immigration leads to an increase in import varieties of about 0.30 per cent. Canadian import varieties grew about 3.03 per cent per year between 1988 and 2007 while the stock of immigrants rose by 2.39 per cent. This suggests that as much as 24 per cent of the growth in Canadian import varieties a year is the result of immigration. Taken at face value, this implies that Canadians were 7 per cent better off in terms of wellbeing as the direct result of the increase in the stock of immigrants.
So which regions contributed the most to Canadian well-being through that growth in variety of goods? According to this paper, goods from China contributed 15.74 per cent to Canadian welfare growth from increased variety despite the fact that goods from China only constitute an annual average of 3.87 per cent of all imports. The next is the states of Kansas (9 per cent) and Colorado (6 per cent). Thailand, New Zealand and France also contributed to welfare growth from varieties (almost 16 per cent total), despite being a small share of Canadian imports.
So the volume of trade between regions does not have to be large for the gains from trade, measured as welfare improvements though increased variety of goods, to be significant.
Immigration will always be part of the public discourse in Canada. This paper bring to light an additional benefit of immigration for Canadians if immigrants bring with them an increased access to world markets that Canadians can exploit. This paper talks only about imports, but it seems to me that the road goes both ways and that immigrants might very well open doors to exports as well -- allowing even greater gains to Canadian producers.
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