International Trade and Income Differences

Federal Reserve Bank of Minneapolis Staff Report No. 435

Posted: 30 Oct 2009

See all articles by Michael E. Waugh

Michael E. Waugh

New York University (NYU), Leonard N. Stern School of Business, Department of Economics

Date Written: October 28, 2009

Abstract

I develop a novel view of the trade frictions between rich and poor countries by arguing that to reconcile bilateral trade volumes and price data within a standard gravity model, the trade frictions between rich and poor countries must be systematically asymmetric, with poor countries facing higher costs to export relative to rich countries. I provide a method to model these asymmetries and demonstrate the merits of my approach relative to alternatives in the trade literature. I then argue that these trade frictions are quantitatively important to understanding the large differences in standards of living and total factor productivity across countries.

Keywords: trade, income, bilateral, trade costs

JEL Classification: F, F1, O4

Suggested Citation

Waugh, Michael E., International Trade and Income Differences (October 28, 2009). Federal Reserve Bank of Minneapolis Staff Report No. 435. Available at SSRN: https://ssrn.com/abstract=1495755

Michael E. Waugh (Contact Author)

New York University (NYU), Leonard N. Stern School of Business, Department of Economics ( email )

269 Mercer Street
New York, NY 10003
United States

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