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MARKET OVERLAP AND THE DIRECTION OF EXPORTS - a new approach of assessing the Linder hypothesis

Author

Listed:
  • Bohman, Helena

    (Jönköping International Business School (JIBS))

  • Nilsson, Desirée

    (Jönköping International Business School (JIBS))

Abstract

The Linder hypothesis states that countries will trade more intensively with countries that have similar structures of demand. We suggest an alternative method of assessing the hypothesis, incorporating the distribution of income within a country. The variables that we develop capture the similarity in demand structures between two trading partners and the size of the market for which the market overlap is identified. These variables are included in a one-sided gravity model. Results show that similarity in structure of demand act as a catalyst of trade flows between countries and that similarities are more important for the differentiated goods than homogenous goods.

Suggested Citation

  • Bohman, Helena & Nilsson, Desirée, 2007. "MARKET OVERLAP AND THE DIRECTION OF EXPORTS - a new approach of assessing the Linder hypothesis," Working Paper Series in Economics and Institutions of Innovation 86, Royal Institute of Technology, CESIS - Centre of Excellence for Science and Innovation Studies.
    • Handle: RePEc:hhs:cesisp:0086
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    References listed on IDEAS

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    Cited by:

    1. Jošić Hrvoje & Metelko Matej, 2018. "Testing the validity of the Linder hypothesis for Croatia," Croatian Review of Economic, Business and Social Statistics, Sciendo, vol. 4(1), pages 62-73, June.
    2. Sapa, Agnieszka & Kryszak, Łukasz, 2021. "Processed Food Trade Of European Union Countries – The Gravity Approach," Roczniki (Annals), Polish Association of Agricultural Economists and Agribusiness - Stowarzyszenie Ekonomistow Rolnictwa e Agrobiznesu (SERiA), vol. 2021(2).
    3. Einian, Majid & Ravasan, Farshad, 2016. "A Perfect Specialization Model for Gravity Equation in Bilateral Trade based on Production Structure," MPRA Paper 72734, University Library of Munich, Germany.
    4. Inmaculada Martínez-Zarzoso & Sebastian Vollmer, 2016. "Bilateral Trade Flows and Income Distribution Similarity," PLOS ONE, Public Library of Science, vol. 11(5), pages 1-12, May.
    5. Charles Braymen & Eddery Lam, 2014. "Income Distribution and the Composition of Imports," The International Trade Journal, Taylor & Francis Journals, vol. 28(2), pages 121-139, June.
    6. Claudia Bernasconi, 2013. "Similarity of income distributions and the extensive and intensive margin of bilateral trade flows," ECON - Working Papers 115, Department of Economics - University of Zurich.
    7. Tania Georgia VICIU & Larisa MIHOREANU & Carmen COSTEA, 2016. "An Essay on the Applicability of the Linder Hypothesis in Determining the Patterns of the Romanian International Trade," Journal of Economic Development, Environment and People, Alliance of Central-Eastern European Universities, vol. 5(1), pages 52-62, March.

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    More about this item

    Keywords

    Linder hypothesis; income distribution; overlapping demand;
    All these keywords.

    JEL classification:

    • B41 - Schools of Economic Thought and Methodology - - Economic Methodology - - - Economic Methodology
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution
    • F10 - International Economics - - Trade - - - General

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