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Per capita income demand for variety, and international trade: Linder reconsidered

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  • Ramezzana, Paolo

Abstract

We analyse a monopolistically competitive model of international trade where goods must be consumed in indivisible amounts. The number of varieties that enter a consumer''s optimal consumption bundle is increasing in the consumer''s per capita income. We first show that, for a given level of GDP, less populous and richer economies have a larger equilibrium number of product varieties. We then show that in an integrated world, even when total GDP is kept constant in all markets, as the levels of and the similarity in the trading partners'' per capita incomes increase, so do the number of varieties exchanged and the volume of bilateral trade flows, as conjectured in the Linder hypothesis. Implications for the distribution of gains from trade between and within countries are also discussed.

Suggested Citation

  • Ramezzana, Paolo, 2000. "Per capita income demand for variety, and international trade: Linder reconsidered," LSE Research Online Documents on Economics 20184, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:20184
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    References listed on IDEAS

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    1. Kevin M. Murphy & Andrei Shleifer & Robert Vishny, 1989. "Income Distribution, Market Size, and Industrialization," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 104(3), pages 537-564.
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    6. Hunter, Linda, 1991. "The contribution of nonhomothetic preferences to trade," Journal of International Economics, Elsevier, vol. 30(3-4), pages 345-358, May.
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    8. James R. Markusen, 2021. "Explaining the Volume of Trade: An Eclectic Approach," World Scientific Book Chapters, in: BROADENING TRADE THEORY Incorporating Market Realities into Traditional Models, chapter 9, pages 177-186, World Scientific Publishing Co. Pte. Ltd..
    9. Helpman, Elhanan, 1987. "Imperfect competition and international trade: Evidence from fourteen industrial countries," Journal of the Japanese and International Economies, Elsevier, vol. 1(1), pages 62-81, March.
    10. Jackson, Laurence Fraser, 1984. "Hierarchic Demand and the Engel Curve for Variety," The Review of Economics and Statistics, MIT Press, vol. 66(1), pages 8-15, February.
    11. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-116, March.
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    Cited by:

    1. Alexander Tarasov, 2012. "Trade Liberalization and Welfare Inequality: A Demand-Based Approach," Scandinavian Journal of Economics, Wiley Blackwell, vol. 114(4), pages 1296-1317, December.
    2. Kugler, Maurice, 2000. "International trade when inequality determines aggregate demand," Discussion Paper Series In Economics And Econometrics 24, Economics Division, School of Social Sciences, University of Southampton.
    3. repec:lan:wpaper:3341 is not listed on IDEAS
    4. K T Soo, 2006. "What does the eclectic trade model say about the Samuelson conundrum?," Working Papers 578283, Lancaster University Management School, Economics Department.
    5. Mitchell, Lorraine, 2006. "Variety, Agricultural Trade, and Income," 2006 Annual meeting, July 23-26, Long Beach, CA 21246, American Agricultural Economics Association (New Name 2008: Agricultural and Applied Economics Association).
    6. Carmen Fillat-Castejon & Jose Ma Serrano-sanz, 2004. "Linder Revisited: Trade and Development in the Spanish Economy," International Review of Applied Economics, Taylor & Francis Journals, vol. 18(3), pages 323-348.
    7. Tarasov Alexander, 2009. "Income Distribution, Market Structure, and Individual Welfare," The B.E. Journal of Theoretical Economics, De Gruyter, vol. 9(1), pages 1-39, December.
    8. Kugler, Maurice, 2000. "International trade when inequality determines aggregate demand," Discussion Paper Series In Economics And Econometrics 0024, Economics Division, School of Social Sciences, University of Southampton.
    9. repec:lan:wpaper:3062 is not listed on IDEAS
    10. repec:lan:wpaper:3155 is not listed on IDEAS
    11. repec:lan:wpaper:3064 is not listed on IDEAS
    12. Laixiang Sun & In Hyeock Lee & Eunsuk Hong, 2017. "Does foreign direct investment stimulate new firm creation? In search of spillovers through industrial and geographical linkages," Small Business Economics, Springer, vol. 48(3), pages 613-631, March.

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    More about this item

    Keywords

    Per capita income; product variety; international trade;
    All these keywords.

    JEL classification:

    • L81 - Industrial Organization - - Industry Studies: Services - - - Retail and Wholesale Trade; e-Commerce

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