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Differentiated Agri-Food Product Trade and the Linder Effect

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Author Info
Haq, Zahoor
Meilke, Karl D.
Abstract

Using a generalized gravity equation, this study tests for the Linder effect in differentiated agrifood product trade, i.e. as the demand structures of two countries become more similar, their trade intensity increases. Two proxies of demand structure, the Balassa index and the absolute value of the difference in per capita GDPs of trading partners, are used to capture the Linder effect. In addition, two measures of bilateral trade, the Grubel and Lloyed index, and the value of bilateral trade are used as the dependent variable. The study investigates the role of the Linder effect in explaining the trade of 37 differentiated agri-food and beverage products categorized into eight product groups: cereals; fresh fish; frozen fish; vegetables; fresh fruit; processed fruit; tea and coffee; and alcoholic beverages. The data covers trade across 52 developed and developing countries from 1990 to 2000. The type of proxy used for the Linder effect and the way in which bilateral trade is measured influence the outcome of the statistical tests for the Linder effect. The Linder effect for cereals, frozen fish, vegetables, processed fruits, and tea and coffee, using the value of trade as the dependent variable, is often accepted but it is generally rejected when the GL index is used as the measure of trade intensity. In brief, the results do not provide strong support for the Linder effect in the trade of differentiated agri-food products.

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Paper provided by Canadian Agricultural Trade Policy Research Network in its series Working Papers with number 46629.

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Date of creation: Oct 2008
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Handle: RePEc:ags:catpwp:46629

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Related research
Keywords: Agri-food; Generalized Gravity Equation; Grubel and Lloyed index; Linder Effect; trade; Agricultural and Food Policy; International Relations/Trade;

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  1. Thursby, Jerry G & Thursby, Marie C, 1987. "Bilateral Trade Flows, the Linder Hypothesis, and Exchange Risk," The Review of Economics and Statistics, MIT Press, vol. 69(3), pages 488-95, August. [Downloadable!] (restricted)
  2. McPherson, Michael A & Redfearn, Michael R & Tieslau, Margie, 2001. "International Trade and Developing Countries: An Empirical Investigation of the Linder Hypothesis," Applied Economics, Taylor and Francis Journals, vol. 33(5), pages 649-57, April. [Downloadable!] (restricted)
  3. Francois, Joseph F & Kaplan, Seth, 1996. "Aggregate Demand Shifts, Income Distribution, and the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 244-50, May. [Downloadable!] (restricted)
  4. Carmen Fillat-Castejón & José Ma Serrano-sanz, 2004. "Linder Revisited: Trade and Development in the Spanish Economy," International Review of Applied Economics, Taylor and Francis Journals, vol. 18(3), pages 323-348, July. [Downloadable!] (restricted)
  5. Hirschberg, Joseph G & Sheldon, Ian M & Dayton, James R, 1994. "An Analysis of Bilateral Intra-industry Trade in the Food Processing Sector," Applied Economics, Taylor and Francis Journals, vol. 26(2), pages 159-67, February.
  6. Hummels, David & Levinsohn, James, 1995. "Monopolistic Competition and International Trade: Reconsidering the Evidence," The Quarterly Journal of Economics, MIT Press, vol. 110(3), pages 799-836, August. [Downloadable!] (restricted)
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  7. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January. [Downloadable!] (restricted)
  8. Krugman, Paul R., 1979. "Increasing returns, monopolistic competition, and international trade," Journal of International Economics, Elsevier, vol. 9(4), pages 469-479, November. [Downloadable!] (restricted)
  9. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March. [Downloadable!] (restricted)
  10. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March. [Downloadable!]
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