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Bilateral export trade and income similarity: Does the Linder hypothesis hold for agricultural and food trade?

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  • Steinbach, Sandro

Abstract

In this paper we invesƟgate the Linder hypothesis for bilateral export trade in agricultural and food products by uƟlizing the sectoral gravity equaƟon derived in Hallak (2010). Based on a sample of 152 countries, we study the relaƟonship for 737 agricultural and food products at the 6-digit HS code level, using trade data for 1995-2012. We esƟmate the gravity equaƟon year by and year and sector by sector, analyzing the esƟmates of Linder's term for two specificaƟons of the similarity index. We compare a theoreƟcally jusƟfied definiƟon of the index with an adjusted definiƟon that takes into account relaƟve prices. We show that similar demand structures determine bilateral export trade. AccounƟng for relaƟve prices, we find that the Linder term is more pronounced. Our find¬ings show that the similarity effect is strongest for processed products and weakest for bulk products. From those results we come to the conclusion that similar aggregate preferences are a major driver of export trade in final consumpƟon goods.

Suggested Citation

  • Steinbach, Sandro, 2015. "Bilateral export trade and income similarity: Does the Linder hypothesis hold for agricultural and food trade?," 2015 International European Forum (144th EAAE Seminar), February 9-13, 2015, Innsbruck-Igls, Austria 206217, International European Forum on System Dynamics and Innovation in Food Networks.
    • Handle: RePEc:ags:iefi15:206217
    DOI: 10.22004/ag.econ.206217
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    References listed on IDEAS

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    1. Jean-François Arvis & Ben Shepherd, 2013. "The Poisson quasi-maximum likelihood estimator: a solution to the ‘adding up’ problem in gravity models," Applied Economics Letters, Taylor & Francis Journals, vol. 20(6), pages 515-519, April.
    2. Juan Carlos Hallak, 2010. "A Product-Quality View of the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 92(3), pages 453-466, August.
    3. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    4. Regmi, Anita & Gehlhar, Mark J. & Wainio, John & Vollrath, Thomas L. & Johnston, Paul V. & Kathuria, Nitin, 2005. "Market Access For High-Value Foods," Agricultural Economic Reports 33999, United States Department of Agriculture, Economic Research Service.
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    Cited by:

    1. Jošić Hrvoje & Metelko Matej, 2018. "Testing the validity of the Linder hypothesis for Croatia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 4(1), pages 62-73, June.

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