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International trade and income differences

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  • Michael E. Waugh

Abstract

I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically asymmetric, with poor countries facing higher costs to export relative to rich countries. I provide a method to model these asymmetries and demonstrate the merits of my approach relative to alternatives in the trade literature. I then argue that these trade frictions are quantitatively important to understanding the large differences in standards of living and total factor productivity across countries.

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Bibliographic Info

Paper provided by Federal Reserve Bank of Minneapolis in its series Staff Report with number 435.

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Date of creation: 2009
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Handle: RePEc:fip:fedmsr:435

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Keywords: Trade ; Developed countries ; Developing countries ; Exports;

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  17. Corbo, Vittorio, 1997. "Trade Reform and Uniform Import Tariffs: The Chilean Experience," American Economic Review, American Economic Association, vol. 87(2), pages 73-77, May.
  18. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc.
  19. David Lagakos, 2009. "Superstores or mom and pops? Technolgy adoption and productivity differences in retail trade," Staff Report 428, Federal Reserve Bank of Minneapolis.
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