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MARKET OVERLAP AND THE DIRECTION OF EXPORTS - a new approach of assessing the Linder hypothesis

  • Bohman, Helena

    ()

    (Jönköping International Business School (JIBS))

  • Nilsson, Desirée

    ()

    (Jönköping International Business School (JIBS))

Registered author(s):

    The Linder hypothesis states that countries will trade more intensively with countries that have similar structures of demand. We suggest an alternative method of assessing the hypothesis, incorporating the distribution of income within a country. The variables that we develop capture the similarity in demand structures between two trading partners and the size of the market for which the market overlap is identified. These variables are included in a one-sided gravity model. Results show that similarity in structure of demand act as a catalyst of trade flows between countries and that similarities are more important for the differentiated goods than homogenous goods.

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    File URL: https://static.sys.kth.se/itm/wp/cesis/cesiswp86.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 86.

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    Length: 21 pages
    Date of creation: 20 Mar 2007
    Date of revision:
    Handle: RePEc:hhs:cesisp:0086
    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. Murphy, Kevin M & Shleifer, Andrei & Vishny, Robert W, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, MIT Press, vol. 104(3), pages 537-64, August.
    2. Hunter, Linda, 1991. "The contribution of nonhomothetic preferences to trade," Journal of International Economics, Elsevier, vol. 30(3-4), pages 345-358, May.
    3. Juan Carlos Hallak, 2006. "A Product-Quality View of the Linder Hypothesis," NBER Working Papers 12712, National Bureau of Economic Research, Inc.
    4. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
    5. Dow, James & da Costa Werlang, Sergio Ribeiro, 1992. "Homothetic preferences," Journal of Mathematical Economics, Elsevier, vol. 21(4), pages 389-394.
    6. Yo Chul Choi & David Hummels & Chong Xiang, 2006. "Explaining Import Variety and Quality: The Role of the Income Distribution," NBER Working Papers 12531, National Bureau of Economic Research, Inc.
    7. 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.
    8. Xavier Sala-i-Martin, 2006. "The World Distribution of Income: Falling Poverty and ... Convergence, Period," The Quarterly Journal of Economics, MIT Press, vol. 121(2), pages 351-397, May.
    9. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-59, December.
    10. Hallak, Juan Carlos, 2006. "Product quality and the direction of trade," Journal of International Economics, Elsevier, vol. 68(1), pages 238-265, January.
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