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

Helena Bohman (helena.bohman@ihh.hj.se) and Desirée Nilsson (desiree.nilsson@ihh.hj.se)
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Helena Bohman: Jönköping International Business School (JIBS)
Desirée Nilsson: Jönköping International Business School (JIBS)

No 86, Working Paper Series in Economics and Institutions of Innovation from Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies

Abstract: 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.

Keywords: Linder hypothesis; income distribution; overlapping demand (search for similar items in EconPapers)
JEL-codes: B41 D31 F10 (search for similar items in EconPapers)
Pages: 21 pages
Date: 2007-03-20
New Economics Papers: this item is included in nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (9)

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