Bilateral Trade and Similarity of Income Distributions: The Role of Second Moments

Peter Eppinger, Gabriel Felbermayr and Gabriel J. Felbermayr
Authors registered in the RePEc Author Service: Gabriel J Felbermayr

No 184, ifo Working Paper Series from ifo Institute - Leibniz Institute for Economic Research at the University of Munich

Abstract: We use an augmented gravity model to revisit the effect of similarity in income distributions on bilateral trade flows. Disentangling supply-side and demand-side mechanisms, we document a robust new 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 strengthens the role of non-homothetic preferences in trade theory.

JEL-codes: D31 F10 (search for similar items in EconPapers)
Date: 2014
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Journal Article: Bilateral trade and similarity of income distributions: The role of second moments (2015)
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Persistent link: https://EconPapers.repec.org/RePEc:ces:ifowps:_184

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