International Trade as Determined by Income and Income Distribution
International Economic Journal, Vol. 21, No. 4, pp. 631–652, December 2007
23 Pages Posted: 21 Oct 2009
Date Written: October 19, 2007
In standard trade theory, consumption is normally assumed to be homothetic. Consequently, income and its distribution have no role in determining international trade patterns. This paper examines the assumption and its implications. The assumption of homothetic preferences is rejected at the1%level. It further demonstrates that the Heckscher–Ohlin–Vanek (HOV) model modified by allowing for non-homothetic taste improves the performance of HOV prediction and explains some of the trade puzzles and paradoxes.
Keywords: Income distribution, homothetic preference, international trade, factor content of
JEL Classification: F11, D12, D31
Suggested Citation: Suggested Citation