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Income Inequality as a Determinant of Trade Flows

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Abstract

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.

Suggested Citation

  • Bohman, Helena & Nilsson, Désirée, 2006. "Income Inequality as a Determinant of Trade Flows," Working Paper Series in Economics and Institutions of Innovation 73, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
  • Handle: RePEc:hhs:cesisp:0073
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    1. Alan Deardorff, 1998. "Determinants of Bilateral Trade: Does Gravity Work in a Neoclassical World?," NBER Chapters,in: The Regionalization of the World Economy, pages 7-32 National Bureau of Economic Research, Inc.
    2. Arne Bigsten & Paul Collier & Stefan Dercon & Marcel Fafchamps & Bernard Gauthier & Jan Willem Gunning & Abena Oduro & Remco Oostendorp & Catherine Pattillo & Måns 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.
    3. 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.
    4. Clements, Kenneth W & Selvanathan, Saroja, 1994. "Understanding Consumption Patterns," Empirical Economics, Springer, vol. 19(1), pages 69-110.
    5. 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 244-250, May.
    6. Clements, Kenneth W. & Qiang, Ye, 2003. "The Economics of Global Consumption Patterns," Journal of Agricultural and Applied Economics, Southern Agricultural Economics Association, vol. 35.
    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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    Cited by:

    1. E. Gencer & William Anderson, 2014. "An intra-industry trade model in a vertical differentiation framework," The Annals of Regional Science, Springer;Western Regional Science Association, vol. 52(1), pages 201-226, January.

    More about this item

    Keywords

    income inequality; trade flows;

    JEL classification:

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

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