International Trade and Income Differences
American Economic Review · 2010 · Volume 100 · Issue 5
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. (JEL F11, F13, F14, O19 )
Keywords
Neoclassical Models of Trade, Trade Policy, International Trade Organizations, Country and Industry Studies of Trade, International Linkages to Development, Role of International Organizations
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