Per capita income and the extensive margin of bilateral trade

Christian Hepenstrick and Alexander Tarasov

Canadian Journal of Economics, 2015, vol. 48, issue 4, 1561-1599

Abstract: This paper quantitatively explores the role of demand in explaining the positive correlation between an importer's per capita income and the extensive margin of bilateral trade. The theoretical mechanism is based on agents that increase the set of goods they consume with income. This affects the structure of a country's import demand and therewith the extensive margin of trade. We formalize this intuition by incorporating preferences that allow for binding non-negativity constraints into an otherwise standard Ricardian multi-country model. We quantify the model and find that the behaviour of the model's extensive margin of trade is consistent with the data.

JEL-codes: F10 (search for similar items in EconPapers)
Date: 2015
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Citations: View citations in EconPapers (2)

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Related works:
Journal Article: Per capita income and the extensive margin of bilateral trade (2015)
Working Paper: Per capita income and the extensive margin of bilateral trade (2012)
Working Paper: Per-capita incomes and the extensive margin of bilateral trade (2010)
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