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Income Inequality as a Determinant of Trade Flows

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    Consumer studies have a long tradition of incorporating non-homothetic preferences in their models, whereas this has been very uncommon in studies of international trade. We use a model from Mitra and Trindade (2005) to set up a gravity model in which we include income distribution measures as explanatory variables for the exporting as well as for the importing countries. Our results indicate that non-homothetic preferences significantly affect both exports and imports.

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    File URL: https://static.sys.kth.se/itm/wp/cesis/cesiswp73.pdf
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    Paper 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 73.

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    Length: 28 pages
    Date of creation: 22 Sep 2006
    Date of revision:
    Handle: RePEc:hhs:cesisp:0073
    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/

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    1. Muhammed Dalgin & Vitor Trindade & Devashish Mitra, 2008. "Inequality, Nonhomothetic Preferences, and Trade: A Gravity Approach," Southern Economic Journal, Southern Economic Association, vol. 74(3), pages 747-774, January.
    2. Clements, Kenneth W. & Qiang, Ye, 2003. "The Economics of Global Consumption Patterns," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35.
    3. Alan V. Deardorff, 1995. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Working Papers 5377, National Bureau of Economic Research, Inc.
    4. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & M�ns Soderbom & Francis Teal & Albert Zeu, 2004. "Do African Manufacturing Firms Learn from Exporting?," Journal of Development Studies, Taylor & Francis Journals, vol. 40(3), pages 115-141.
    5. Clements, Kenneth W & Selvanathan, Saroja, 1994. "Understanding Consumption Patterns," Empirical Economics, Springer, vol. 19(1), pages 69-110.
    6. Francois, Joseph F & Kaplan, Seth, 1996. "Aggregate Demand Shifts, Income Distribution, and the Linder Hypothesis," The Review of Economics and Statistics, MIT Press, vol. 78(2), pages 244-50, May.
    7. Robert C. Feenstra & James R. Markusen & Andrew K. Rose, 2001. "Using the gravity equation to differentiate among alternative theories of trade," Canadian Journal of Economics, Canadian Economics Association, vol. 34(2), pages 430-447, May.
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