IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Per-capita incomes and the extensive margin of bilateral trade

Author Info

  • Christian Hepenstrick

Abstract

This paper argues that the per-capita income of importers is an important determinant of the extensive margin of trade. I formalize this by incorporating preferences that allow for binding nonnegativity constraints into an otherwise standard Ricardian model. This implies that agents adjust the set of goods from which they consume with income, which in turn affects the extensive margin of bilateral trade. I quantify the model using data on US consumer behavior and aggregate values of bilateral trade flows. I find that the behavior of the model’s extensive margin of bilateral trade is consistent with elasticities measured in the data. Two counterfactual experiments demonstrate the quantitative importance of the mechanism outlined in this paper.

Download Info

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.iew.uzh.ch/wp/iewwp519.pdf
Download Restriction: no

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 519.

as
in new window

Length:
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:zur:iewwpx:519
Contact details of provider: Postal: Rämistrasse 71, CH-8006 Zürich
Phone: +41-1-634 21 37
Fax: +41-1-634 49 82
Web page: http://www.econ.uzh.ch/Email:


More information through EDIRC

Keywords:

Other versions of this item:

Find related papers by JEL classification:
  • F10 - International Economics - - Trade - - - General
  • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
  • F19 - International Economics - - Trade - - - Other

This paper has been announced in the following NEP Reports:

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Thiele, S. & Weiss, C., 2003. "Consumer demand for food diversity: evidence for Germany," Food Policy, Elsevier, vol. 28(2), pages 99-115, April.
  2. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  3. James R. Markusen, 2010. "Putting Per-Capita Income Back into Trade Theory," NBER Working Papers 15903, National Bureau of Economic Research, Inc.
  4. Costinot, Arnaud & Komunjer, Ivana, 2006. "What Goods Do Countries Trade? New Ricardian Predictions," University of California at San Diego, Economics Working Paper Series qt86n316hw, Department of Economics, UC San Diego.
  5. Reuben Gronau & Daniel S. Hamermesh, 2008. "The Demand for Variety: A Household Production Perspective," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 562-572, August.
  6. Ina Simonovska, 2010. "Income differences and prices of tradables," Globalization and Monetary Policy Institute Working Paper 55, Federal Reserve Bank of Dallas.
  7. David Weinstein & Christian Broda, 2004. "Globalization and the Gains from Variety," 2004 Meeting Papers 530, Society for Economic Dynamics.
  8. Jonathan Eaton & Samuel Kortum & Francis Kramarz, 2004. "Dissecting trade: firms, industries, and export destinations," Staff Report 332, Federal Reserve Bank of Minneapolis.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," Boston College Working Papers in Economics 593, Boston College Department of Economics.
  10. Baldwin, Richard & Harrigan, James, 2007. "Zeros, Quality and Space: Trade Theory and Trade Evidence," CEPR Discussion Papers 6368, C.E.P.R. Discussion Papers.
  11. Michael E. Waugh, 2009. "International trade and income differences," Staff Report 435, Federal Reserve Bank of Minneapolis.
  12. Jackson, Laurence Fraser, 1984. "Hierarchic Demand and the Engel Curve for Variety," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 8-15, February.
  13. Michael Waugh & Ina Simonovska, 2010. "The Elasticity of Trade: Estimates and Evidence," 2010 Meeting Papers 637, Society for Economic Dynamics.
  14. Santos Silva, J.M.C & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  15. Tarasov, Alexander, 2012. "Per capita income, market access costs, and trade volumes," Munich Reprints in Economics 19577, University of Munich, Department of Economics.
  16. Pablo Fajgelbaum & Gene M. Grossman & Elhanan Helpman, 2011. "Income Distribution, Product Quality, and International Trade," Journal of Political Economy, University of Chicago Press, vol. 119(4), pages 721 - 765.
  17. Wanki Moon & Wojciech Florkowski & Larry Beuchat & Anna Resurreccion & Pavlina Paraskova & Jordan Jordanov & Manjeet Chinnan, 2002. "Demand for food variety in an emerging market economy," Applied Economics, Taylor & Francis Journals, vol. 34(5), pages 573-581.
  18. Choi, Yo Chul & Hummels, David & Xiang, Chong, 2009. "Explaining import quality: The role of the income distribution," Journal of International Economics, Elsevier, vol. 78(2), pages 293-303, July.
  19. Mark D. Jekanowski & James K. Binkley, 2000. "Food purchase diversity across U.S. markets," Agribusiness, John Wiley & Sons, Ltd., vol. 16(4), pages 417-433.
  20. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  21. Dollar, David & Kraay, Aart, 2002. " Growth Is Good for the Poor," Journal of Economic Growth, Springer, vol. 7(3), pages 195-225, September.
  22. Gaulier, Guillaume & Zignago, Soledad, 2004. "Notes on BACI (analytical database of international trade). 1989-2002 version," MPRA Paper 32401, University Library of Munich, Germany.
  23. Feenstra, Robert C, 1994. "New Product Varieties and the Measurement of International Prices," American Economic Review, American Economic Association, vol. 84(1), pages 157-77, March.
  24. Alvarez, Fernando & Lucas, Robert Jr., 2007. "General equilibrium analysis of the Eaton-Kortum model of international trade," Journal of Monetary Economics, Elsevier, vol. 54(6), pages 1726-1768, September.
  25. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680, March.
  26. Pablo D. Fajgelbaum, 2011. "Income Distribution, Product Quality and International Trade," 2011 Meeting Papers 415, Society for Economic Dynamics.
  27. Kiminori Matsuyama, 2000. "A Ricardian Model with a Continuum of Goods under Nonhomothetic Preferences: Demand Complementarities, Income Distribution, and North-South Trade," Journal of Political Economy, University of Chicago Press, vol. 108(6), pages 1093-1120, December.
  28. Föllmi, Reto & Hepenstrick, Christian & Zweimüller, Josef, 2011. "Non-homothetic preferences, parallel imports and the extensive margin of international trade," Economics Working Paper Series 1122, University of St. Gallen, School of Economics and Political Science.
  29. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
  30. David Hummels & Peter J. Klenow, 2002. "The Variety and Quality of a Nation's Trade," NBER Working Papers 8712, National Bureau of Economic Research, Inc.
  31. Ana Cecília Fieler, 2011. "Nonhomotheticity and Bilateral Trade: Evidence and a Quantitative Explanation," Econometrica, Econometric Society, vol. 79(4), pages 1069-1101, 07.
Full references (including those not matched with items on IDEAS)

Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.

as in new window


Cited by:

  1. Maria MASOOD, 2014. "New Evidence on Development and Cultural Trade: Diversification, Reconcentration and Domination," Working Papers P85, FERDI.
  2. Behrens, Kristian & Murata, Yasusada, 2012. "Globalization and individual gains from trade," Journal of Monetary Economics, Elsevier, vol. 59(8), pages 703-720.
  3. Kristian Behrens & Yasusada Murata, 2012. "Globalization and Individual Gains from Trade (revised version)," Cahiers de recherche 1218, CIRPEE.
  4. repec:lmu:muenec:15421 is not listed on IDEAS
  5. Claudia Bernasconi, 2013. "Similarity of income distributions and the extensive and intensive margin of bilateral trade flows," ECON - Working Papers 115, Department of Economics - University of Zurich.
  6. Hepenstrick, Christian & Tarasov, Alexander, 2013. "Trade Openness and Cross-country Income Differences," Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems 402, Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich.

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

Access and download statistics

When requesting a correction, please mention this item's handle: RePEc:zur:iewwpx:519. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Marita Kieser)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.