Year: 1999
Title:
The empirical basis for a complete theory of international trade
JEL: F10
Authors:
F. Requenas-Silvente, London School of Economics
J. Walker
Abstract:
Where intra-industry trade is concerned, income inequality between countries matters. We propose an empirical model that separates the productivity effects of factor supplies (the Heckscher-Ohlin model), and differences in tastes driven by both income per capita (the classical Linder hypothesis), and income inequality (a reinterpretation of Linder's hypothesis that provides an explicit role for income distribution) within a unified framework to explain IIT volumes and patterns. We then test the empirical validity of our model, first within a static framework, then utilising a dynamic analysis. We are interested in whether inequality affects bilateral IIT patterns and volumes symmetrically within and between countries in the North and the South. We therefore focus our investigation on the North/South, and North/North cases.We find that:
á In both our static and dynamic specifications income inequality differences reduce IIT
á Greater levels of income inequality in the South have a detrimental impact on bilateral IIT
á Greater egalitarianism between Northern countries is IIT enhancing
Our empirical results provide challenges and opportunities for both trade theorist and empirical practitioners alike.
Keywords:
Intra-industry trade, income inequality, North-South
Contact address: f.requenas-silvente at lse.ac.uk
Paper URL: http://No direct link available
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