Market Potential and Income Inequality
AbstractThis study assumes that non-homothetic preferences determine the flow of international trade. Empirical studies of international trade have commonly only considered demand from a representative consumer. This would not provide a complete picture of the aggregate market demand. Because of the prevalence of non-homothetic preferences in demand, firms that contemplate exports should consider the distribution of income within a country as an attribute of the corresponding market. This study evaluates the effect that income inequality may exert on a firm’s probability of selecting a particular export market. The theoretical framework is supported by discrete choice theory, and the empirical analysis uses export statistics for the OECD countries. The results indicate that uneven income distribution is perceived as an attractive feature of destinations for exports.
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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 94.
Length: 24 pages
Date of creation: 08 Aug 2007
Date of revision:
Contact details of provider:
Postal: CESIS - Centre of Excellence for Science and Innovation Studies, Royal Institute of Technology, SE-100 44 Stockholm, Sweden
Phone: +46 8 790 95 63
Web page: http://www.infra.kth.se/cesis/
More information through EDIRC
market potential; income inequality; discrete choice theory;
Find related papers by JEL classification:
- D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
- F10 - International Economics - - Trade - - - General
This paper has been announced in the following NEP Reports:
- NEP-ALL-2007-08-27 (All new papers)
- NEP-DCM-2007-08-27 (Discrete Choice Models)
- NEP-INT-2007-08-27 (International Trade)
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