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

See all articles by Beiling Yan

Beiling Yan

Government of Canada - Micro-Economic Analysis Division

Date Written: October 19, 2007

Abstract

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

Yan, Beiling, International Trade as Determined by Income and Income Distribution (October 19, 2007). International Economic Journal, Vol. 21, No. 4, pp. 631–652, December 2007, Available at SSRN: https://ssrn.com/abstract=1491731

Beiling Yan (Contact Author)

Government of Canada - Micro-Economic Analysis Division ( email )

24 Floor - R.H.Coats Building
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