KTH/CESIS Working Paper Series in Economics and Institutions of Innovation
MARKET OVERLAP AND THE DIRECTION OF EXPORTS - a new approach of assessing the Linder hypothesis
() and Desirée Nilsson
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.
Keywords: Linder hypothesis; income distribution; overlapping demand; (follow links to similar papers)
JEL-Codes: B41; D31; F10; (follow links to similar papers)
21 pages, March 20, 2007
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