Per Capita Income and the Extensive Margin of Bilateral Trade

39 Pages Posted: 27 May 2016

See all articles by Christian Hepenstrick

Christian Hepenstrick

Swiss National Bank

Alexander Tarasov

National Research University Higher School of Economics

Date Written: November / Novembre 2015

Abstract

English Abstract: This paper quantitatively explores the role of demand in explaining the positive correlation between an importer's per capita income and the extensive margin of bilateral trade. The theoretical mechanism is based on agents that increase the set of goods they consume with income. This affects the structure of a country's import demand and therewith the extensive margin of trade. We formalize this intuition by incorporating preferences that allow for binding non‐negativity constraints into an otherwise standard Ricardian multi‐country model. We quantify the model and find that the behaviour of the model's extensive margin of trade is consistent with the data.

French Abstract: Revenu per capita et la marge extensive du commerce bilatéral. Ce texte explore quantitativement le rôle de la demande dans l'explication de la corrélation positive entre le revenu per capita d'un importateur et la marge extensive du commerce bilatéral. Le mécanisme théorique est basé sur les agents qui accroissent l'ensemble des biens qu'ils consomment à proportion que leur revenu s'accroît. Voilà qui affecte la structure de la demande pour les importations d'un pays, et donc la marge extensive de son commerce. On formalise cette intuition en incorporant les préférences ce qui permet d'introduire des contraintes de non‐négativité dans un modèle ricardien à plusieurs pays. On calibre ce modèle et on découvre que le comportement de la marge extensive du commerce s'arrime bien aux données.

Suggested Citation

Hepenstrick, Christian and Tarasov, Alexander, Per Capita Income and the Extensive Margin of Bilateral Trade (November / Novembre 2015). Canadian Journal of Economics/Revue canadienne d'économique, Vol. 48, Issue 4, pp. 1561-1599, 2015, Available at SSRN: https://ssrn.com/abstract=2784979 or http://dx.doi.org/10.1111/caje.12154

Christian Hepenstrick (Contact Author)

Swiss National Bank ( email )

Research
Fraumuensterstr. 8
Zuerich, 8022
Switzerland

Alexander Tarasov

National Research University Higher School of Economics ( email )

Myasnitskaya street, 20
Moscow, Moscow 119017
Russia

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