Per capita income and the extensive margin of bilateral trade

Christian Hepenstrick and Alexander Tarasov

Canadian Journal of Economics/Revue canadienne d'économique, 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. Revenu per capita et la marge extensive du commerce bilatéral. Ce texte explore quantitativement le rôle de la demande dans l'explication de la corrélation positive entre le revenu per capita d'un importateur et la marge extensive du commerce bilatéral. Le mécanisme théorique est basé sur les agents qui accroissent l'ensemble des biens qu'ils consomment à proportion que leur revenu s'accroît. Voilà qui affecte la structure de la demande pour les importations d'un pays, et donc la marge extensive de son commerce. On formalise cette intuition en incorporant les préférences ce qui permet d'introduire des contraintes de non‐négativité dans un modèle ricardien à plusieurs pays. On calibre ce modèle et on découvre que le comportement de la marge extensive du commerce s'arrime bien aux données.

Date: 2015
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https://doi.org/10.1111/caje.12154

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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Persistent link: https://EconPapers.repec.org/RePEc:wly:canjec:v:48:y:2015:i:4:p:1561-1599

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