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International Trade and Income Differences

  • Michael E. Waugh

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. (JEL F11, F13, F14, O19 )

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Article provided by American Economic Association in its journal American Economic Review.

Volume (Year): 100 (2010)
Issue (Month): 5 (December)
Pages: 2093-2124

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Handle: RePEc:aea:aecrev:v:100:y:2010:i:5:p:2093-2124
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  1. Timothy J. Kehoe & Kim J. Ruhl, 2013. "How Important Is the New Goods Margin in International Trade?," Journal of Political Economy, University of Chicago Press, vol. 121(2), pages 358 - 392.
  2. Irving B. Kravis & Robert E. Lipsey, 1988. "National Price Levels and the Prices of Tradables and Nontradables," NBER Working Papers 2536, National Bureau of Economic Research, Inc.
  3. Douglas Gollin, 2002. "Getting Income Shares Right," Journal of Political Economy, University of Chicago Press, vol. 110(2), pages 458-474, April.
  4. Kei-Mu Yi, 2000. "Can vertical specialization explain the growth of world trade?," Staff Reports 96, Federal Reserve Bank of New York.
  5. Finicelli, Andrea & Pagano, Patrizio & Sbracia, Massimo, 2009. "Trade-revealed TFP," MPRA Paper 16951, University Library of Munich, Germany.
  6. Juan Carlos Hallak & James Levinsohn, 2004. "Fooling Ourselves: Evaluating the Globalization and Growth Debate," Working Papers 509, Research Seminar in International Economics, University of Michigan.
  7. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
  8. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  10. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output Per Worker Than Others?," The Quarterly Journal of Economics, MIT Press, vol. 114(1), pages 83-116, February.
  11. Guner, Nezih & Ventura, Gustavo & Xu, Yi (Daniel), 2007. "Macroeconomic Implications of Size-Dependent Policies," CEPR Discussion Papers 6138, C.E.P.R. Discussion Papers.
  12. David Lagakos, 2009. "Superstores or mom and pops? Technolgy adoption and productivity differences in retail trade," Staff Report 428, Federal Reserve Bank of Minneapolis.
  13. Burstein, Ariel T. & Neves, Joao C. & Rebelo, Sergio, 2003. "Distribution costs and real exchange rate dynamics during exchange-rate-based stabilizations," Journal of Monetary Economics, Elsevier, vol. 50(6), pages 1189-1214, September.
  14. James E. Anderson & Eric van Wincoop, 2000. "Gravity with Gravitas: A Solution to the Border Puzzle," Boston College Working Papers in Economics 485, Boston College Department of Economics.
  15. David Hummels & Volodymyr Lugovskyy, 2006. "Are Matched Partner Trade Statistics a Usable Measure of Transportation Costs?," Review of International Economics, Wiley Blackwell, vol. 14(1), pages 69-86, 02.
  16. 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.
  17. Anonymous, 1997. "Research Updates," Journal of Food Distribution Research, Food Distribution Research Society, vol. 28(1), February.
  18. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-39, December.
  19. repec:idb:brikps:13138 is not listed on IDEAS
  20. Edward Balistreri & Russell Hillberry, 2006. "Trade frictions and welfare in the gravity model: how much of the iceberg melts?," Canadian Journal of Economics, Canadian Economics Association, vol. 39(1), pages 247-265, February.
  21. Charles I. Jones, 2008. "Intermediate Goods, Weak Links, and Superstars: A Theory of Economic Development," NBER Working Papers 13834, National Bureau of Economic Research, Inc.
  22. Robert C. Feenstra & Robert E. Lipsey & Harry P. Bowen, 1997. "World Trade Flows, 1970-1992, with Production and Tariff Data," NBER Working Papers 5910, National Bureau of Economic Research, Inc.
  23. Mauricio Mesquita Moreira & Christian Volpe Martincus & Juan S. Blyde, 2008. "Unclogging the Arteries: The Impact of Transport Costs on Latin American and Caribbean Trade," IDB Publications (Books), Inter-American Development Bank, number 13138, march.
  24. Sebastian Edwards & Daniel Lederman, 1998. "The Political Economy of Unilateral Trade Liberalization: The Case of Chile," NBER Working Papers 6510, National Bureau of Economic Research, Inc.
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