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Per capita income, market access costs, and trade volumes

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  • Tarasov, Alexander

Abstract

There is strong empirical evidence that countries with lower per capita income tend to have smaller trade volumes even after controlling for aggregate income. Furthermore, poorer countries do not just trade less, but have a lower number of trading partners. In this paper, I construct and estimate a general equilibrium model of trade that captures both these features of the trade data. The key element of the model is an association between trade costs (both variable and fixed) and countries' development levels, which can account for the effect of per capita income on trade volumes and explain many zeros in bilateral trade flows. I find that market access costs play an important role in fitting the model to the data. In a counterfactual analysis, I find that removing the asymmetries in trade costs raises welfare in all countries with an average percentage change equal to 29% and larger gains for smaller and poorer countries. Real income inequality falls by 43%.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of International Economics.

Volume (Year): 86 (2012)
Issue (Month): 2 ()
Pages: 284-294

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Handle: RePEc:eee:inecon:v:86:y:2012:i:2:p:284-294

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Web page: http://www.elsevier.com/locate/inca/505552

Related research

Keywords: Country extensive margin; General equilibrium; Structural estimation; Trade zeros;

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References

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Cited by:
  1. Aleksandra Parteka & Massimo Tamberi, 2013. "Product Diversification, Relative Specialisation And Economic Development: Import-Export Analysis," GUT FME Working Paper Series A 15, Faculty of Management and Economics, Gdansk University of Technology.
  2. Hepenstrick, Christian & Tarasov, Alexander, 2012. "Per capita income and the extensive margin of bilateral trade," Discussion Papers in Economics 14231, University of Munich, Department of Economics.
  3. Esteban Jaimovich, 2012. "Import Diversification along the Growth Path," Carlo Alberto Notebooks 242, Collegio Carlo Alberto.
  4. Christian Hepenstrick, 2010. "Per-capita incomes and the extensive margin of bilateral trade," IEW - Working Papers 519, Institute for Empirical Research in Economics - University of Zurich.
  5. Hepenstrick, Christian & Tarasov, Alexander, 2013. "Trade Openness and Cross-country Income Differences," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 402, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.
  6. repec:lmu:muenec:15421 is not listed on IDEAS

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