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Per Capita Income, Market Access Costs, and Trade Volumes

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  • Tarasov, Alexander

Abstract

There is strong empirical evidence that countries with lower per capita income tend to have smaller trade volumes even after controlling for aggregate income. Furthermore, poorer countries do not just trade less, but have a lower number of trading partners. In this paper, I construct and estimate a general equilibrium model of trade that captures both these features of the trade data. There are two novelties in the paper. First, I introduce an association between market access costs and countries�development levels, which can account for the effect of per capita income on trade volumes and explain many zeros in bilateral trade �ows. Secondly, I develop an estimation procedure, which allows me to estimate both variable and �fixed costs of trade. I �nd that given the estimated parameters, the model performs well in matching the data. In particular, the predicted trade elasticity with respect to income per capita is close to that in the data.

Suggested Citation

  • Tarasov, Alexander, 2010. "Per Capita Income, Market Access Costs, and Trade Volumes," Discussion Papers in Economics 11494, University of Munich, Department of Economics.
  • Handle: RePEc:lmu:muenec:11494
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    Cited by:

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    2. Christian Hepenstrick & Alexander Tarasov, 2015. "Trade Openness and Cross-country Income Differences," Review of International Economics, Wiley Blackwell, vol. 23(2), pages 271-302, May.
    3. Parteka, Aleksandra & Tamberi, Massimo, 2013. "Product diversification, relative specialisation and economic development: Import–export analysis," Journal of Macroeconomics, Elsevier, vol. 38(PA), pages 121-135.
    4. Yonatan Berman & Yoash Shapira & Eshel Ben-Jacob, 2014. "Unraveling Hidden Order in the Dynamics of Developed and Emerging Markets," PLOS ONE, Public Library of Science, vol. 9(11), pages 1-10, November.
    5. Jaimovich, Esteban, 2012. "Import diversification along the growth path," Economics Letters, Elsevier, vol. 117(1), pages 306-310.
    6. Christian Hepenstrick & Alexander Tarasov, 2015. "Per capita income and the extensive margin of bilateral trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 48(4), pages 1561-1599, November.
    7. Mallick, Sushanta & Marques, Helena, 2017. "Export prices, selection into exporting and market size: Evidence from China and India," International Business Review, Elsevier, vol. 26(6), pages 1034-1050.
    8. Eugene Bempong Nyantakyi & Steven Husted & Shuichiro Nishioka, 2015. "Trade Frictions and Market Access of Developing Countries: A Product-level Empirical Investigation," Review of International Economics, Wiley Blackwell, vol. 23(5), pages 924-945, November.
    9. repec:pit:wpaper:521 is not listed on IDEAS
    10. Mallick, Sushanta & Marques, Helena, 2016. "Pricing strategy of emerging market exporters in alternate currency regimes: The role of comparative advantage," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 68-81.
    11. Xiaohua Bao, 2014. "How Do Technical Barriers to Trade Affect China's Imports?," Review of Development Economics, Wiley Blackwell, vol. 18(2), pages 286-299, May.
    12. Cosmas S. Mbogela, 2018. "Determinants of Africa - BRIC Countries Bilateral Trade Flows," Economy, Asian Online Journal Publishing Group, vol. 5(1), pages 40-53.
    13. repec:lmu:muenec:15421 is not listed on IDEAS

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    More about this item

    Keywords

    export zeros; �xed costs of trade; country extensive margin;
    All these keywords.

    JEL classification:

    • F1 - International Economics - - Trade

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