MARKET OVERLAP AND THE DIRECTION OF EXPORTS - a new approach of assessing the Linder hypothesis
AbstractThe Linder hypothesis states that countries will trade more intensively with countries that have similar structures of demand. We suggest an alternative method of assessing the hypothesis, incorporating the distribution of income within a country. The variables that we develop capture the similarity in demand structures between two trading partners and the size of the market for which the market overlap is identified. These variables are included in a one-sided gravity model. Results show that similarity in structure of demand act as a catalyst of trade flows between countries and that similarities are more important for the differentiated goods than homogenous goods.
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Bibliographic InfoPaper provided by Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies in its series Working Paper Series in Economics and Institutions of Innovation with number 86.
Length: 21 pages
Date of creation: 20 Mar 2007
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Linder hypothesis; income distribution; overlapping demand;
Find related papers by JEL classification:
- B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- F10 - International Economics - - Trade - - - General
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