International Trade and Income Differences

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...

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Bibliographic Details
Published inThe American economic review Vol. 100; no. 5; pp. 2093 - 2124
Main Author Waugh, Michael E.
Format Journal Article
LanguageEnglish
Published Nashville American Economic Association 01.12.2010
Subjects
Asymmetry
Bilateral economic relations
Capital costs
Cost estimates
Cost estimation models
Costs
Developing countries
Economic costs
Economic models
Economic theory
Experiments
Export prices
Growth models
Importers
Imports
Income distribution
Income inequality
International trade
Prices
Productivity
Regional variation
Standard of living
Studies
Total factor productivity
Trade
Unit costs
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Summary: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.
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ISSN:0002-8282
1944-7981
DOI:10.1257/aer.100.5.2093