Bilateral trade and similarity of income distributions: The role of second moments

Peter Eppinger and Gabriel Felbermayr

Economics Letters, 2015, vol. 126, issue C, 159-162

Abstract: This letter uses an augmented gravity model to revisit the effect of similarity in income distributions on bilateral trade flows. We document a robust new empirical regularity: while differences in average incomes between two countries increase trade, differences in income dispersion reduce it. Our result sheds new light on the Linder hypothesis and stresses the importance of demand-based theories of international trade.

Keywords: International trade; Income distribution; Gravity model; Linder hypothesis; Non-homothetic preferences (search for similar items in EconPapers)
JEL-codes: D31 F10 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (9)

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Working Paper: Bilateral Trade and Similarity of Income Distributions: The Role of Second Moments (2014)
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecolet:v:126:y:2015:i:c:p:159-162

DOI: 10.1016/j.econlet.2014.12.007

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