Bilateral trade flows and income-distribution similarity
AbstractThis paper accounts for non-homothetic preferences by specifically investigating the role of income per capita and income-distribution differences in the context of the gravity model of trade. A theoretically justified gravity model is estimated for disaggregated trade data using a sample of 104 exporters and 108 importers for 1980-2003 to achieve two main goals. First we are able to empirically test some of the theoretical predictions of Markusen (2010), namely that there is a positive dependence of trade on per capita income and that higher inequality increase trade of more sophisticated goods. Second, and in line with the Linder hypothesis, we hypothesized that a higher demands’ overlap implies a more similar demand structure and therefore more trade. We test this hypothesis with new measures of income-distribution similarity. National income distributions are used to calculate income similarity indices that measure how much each country pair overlaps in terms of income distribution and population. We find that per capita income is positively related to bilateral trade and that on average, a 10 percent increase in incomedistribution similarities increases exports by almost 4 percent being this effect stronger for more sophisticated goods in comparison with more homogenous ones.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
Bibliographic InfoPaper provided by Asociación Española de Economía y Finanzas Internacionales in its series Working Papers with number 10-06.
Length: 35 pages
Date of creation: Sep 2010
Date of revision:
Exports; Income distribution; Gravity equation; Density estimation; Non-homothetic prefereces.;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F14 - International Economics - - Trade - - - Empirical Studies of Trade
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
This paper has been announced in the following NEP Reports:
You can help add them by filling out this form.
CitEc Project, subscribe to its RSS feed for this item.
- Markusen, James R., 2013.
"Putting per-capita income back into trade theory,"
Journal of International Economics,
Elsevier, vol. 90(2), pages 255-265.
- Thibault FALLY, 2012. "Skill premium and trade puzzles: A solution linking production factors and demand," 2012 Meeting Papers 1189, Society for Economic Dynamics.
- Claudia Bernasconi, 2013. "Similarity of income distributions and the extensive and intensive margin of bilateral trade flows," ECON - Working Papers 115, Department of Economics - University of Zurich.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Jose L. Torres).
If references are entirely missing, you can add them using this form.