Bilateral Trade Flows and Income Distribution Similarity

A publication (journal article) of the University of Göttingen

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Martinez-Zarzoso, I. & Vollmer, S. (2016). Bilateral Trade Flows and Income Distribution Similarity. PLoS ONE11(5), Article e0128191. ​doi: https://doi.org/10.1371/journal.pone.0128191 

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Authors
Martinez-Zarzoso, Inmaculada ; Vollmer, Sebastian
Abstract
Current models of bilateral trade neglect the effects of income distribution. This paper addresses the issue by accounting for non-homothetic consumer preferences and hence investigating the role of income distribution in the context of the gravity model of trade. A theoretically justified gravity model is estimated for disaggregated trade data (Dollar volume is used as dependent variable) using a sample of 104 exporters and 108 importers for 1980-2003 to achieve two main goals. We define and calculate new measures of income distribution similarity and empirically confirm that greater similarity of income distribution between countries implies more trade. Using distribution-based measures as a proxy for demand similarities in gravity models, we find consistent and robust support for the hypothesis that countries with more similar income-distributions trade more with each other. The hypothesis is also confirmed at disaggregated level for differentiated product categories.
Issue Date
2016
Publisher
Public Library Science
Journal
PLoS ONE 
Organization
Wirtschaftswissenschaftliche Fakultät
ISSN
1932-6203
Sponsor
Open-Access-Publikationsfonds 2016

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