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Bilateral trade and similarity of income distributions: The role of second moments

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  • Eppinger, Peter S.
  • Felbermayr, Gabriel J.

Abstract

This letter uses an augmented gravity model to revisit the effect of similarity in income distributions on bilateral trade flows. We document a robust new empirical regularity: while differences in average incomes between two countries increase trade, differences in income dispersion reduce it. Our result sheds new light on the Linder hypothesis and stresses the importance of demand-based theories of international trade.

Suggested Citation

  • Eppinger, Peter S. & Felbermayr, Gabriel J., 2015. "Bilateral trade and similarity of income distributions: The role of second moments," Economics Letters, Elsevier, vol. 126(C), pages 159-162.
    • Handle: RePEc:eee:ecolet:v:126:y:2015:i:c:p:159-162
    DOI: 10.1016/j.econlet.2014.12.007
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    4. James R. Markusen, 2021. "Putting per-capita income back into trade theory," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 10, pages 187-197, World Scientific Publishing Co. Pte. Ltd..
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    Cited by:

    1. Hendrik W. Kruse, 2020. "Revisiting the sectoral Linder hypothesis: Aggregation bias or fixed costs?," Review of International Economics, Wiley Blackwell, vol. 28(4), pages 1076-1112, September.
    2. Hendrik W. Kruse, 2016. "Revisiting the Sectoral Linder Hypothesis: Aggregation Bias or Fixed Costs?," LIS Working papers 658, LIS Cross-National Data Center in Luxembourg.
    3. Fu, Dahai & Chen, Yakun & Zhang, Ying, 2020. "Linder hypothesis revisited: Does it hold for services trade?," Economics Letters, Elsevier, vol. 195(C).
    4. Cícero, Vinicius Curti & Lima, Gilberto Tadeu, 2023. "Functional distribution of income as a determinant of importing behavior: An empirical analysis," Structural Change and Economic Dynamics, Elsevier, vol. 65(C), pages 393-405.
    5. Dan Liu & Christopher M. Meissner, 2017. "Geography, Income, and Trade in the 21st Century," NBER Working Papers 24121, National Bureau of Economic Research, Inc.
    6. Alexander Osharin & Valery Verbus, 2018. "Heterogeneity of consumer preferences and trade patterns in a monopolistically competitive setting," Journal of Economics, Springer, vol. 125(3), pages 211-237, November.
    7. Tamini, Lota D. & Chebbi, Houssem Eddine & Abbassi, Abdessalem, 2016. "Trade performance and potential of North African countries: An application of a stochastic frontier gravity model," AGRODEP working papers 33, International Food Policy Research Institute (IFPRI).
    8. Liu, Dan & Meissner, Christopher M., 2019. "Market potential and economic development with non-homotheticity," Journal of Development Economics, Elsevier, vol. 139(C), pages 217-228.
    9. Kitenge, Erick, 2021. "The Linder hypothesis during the globalization era," Economics Letters, Elsevier, vol. 200(C).

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    More about this item

    Keywords

    International trade; Income distribution; Gravity model; Linder hypothesis; Non-homothetic preferences;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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