Linder hypothesis
TheLinder hypothesisis an economics conjecture aboutinternational tradepatterns: The more similar thedemandstructures of countries, the more they will trade with one another. Further, international trade will still occur between two countries having identicalpreferencesandfactor endowments(relying onspecializationto create acomparative advantagein the production ofdifferentiatedgoods between the two nations).
Development of the theory
[edit]The hypothesis was proposed byeconomistStaffan Burenstam Linderin 1961[1]as a possible resolution to theLeontief paradox,which questioned the empirical validity of theHeckscher–Ohlin theory(H–O). H–O predicts that patterns ofinternational tradewill be determined by the relative factor-endowments of different nations. Those with relatively high levels ofcapitalin relation tolaborwould be expected to produce capital-intensive goods while those with an abundance of labor relative to (immobile) capital would be expected to produce labor-intensive goods. H-O and other theories of factor-endowment based trade had dominated the field ofinternational economicsuntilLeontiefperformed a study empirically rejecting H-O. In fact, Leontief found that the United States (then the most capital abundant nation) exported primarily labor-intensive goods. Linder proposed an alternative theory of trade that was consistent with Leontief's findings. The Linder hypothesis presents a demand based theory of trade in contrast to the usualsupplybased theories involving factor endowments. Linder hypothesized that nations with similar demands would develop similar industries. These nations would then trade with each other in similar, but differentiated goods.
Empirical tests
[edit]Examinations of the Linder hypothesis have observed a "Linder effect"consistent with the hypothesis.Econometrictests of the hypothesis usually proxy the demand structure in a country from itsper capita income:It is convenient to assume that the closer are the income levels per consumer the closer are the consumer preferences.[2](That is, the proportionate demand for each good becomes more similar, for example followingEngel's lawon food and non-food spending.) Econometric test of the hypothesis has been difficult because countries with similar levels of per capita income are generally located close to each other geographically, and distance is a very important factor in explaining the intensity of trade between two countries. Generally, a Linder effect has been found to be more significant for trade in manufactures than for non-manufactures, and within manufactures the effect is more significant for trade in capital goods than in consumer goods and more significant for differentiated products than for standardized products.[3]
See also
[edit]References
[edit]- Frankel, Jefferey (1997).Regional Trading Blocs in the World Economic System.Washington, DC: Institute for International Economics. pp. 60, 133–134.ISBN0-88132-202-4.
Footnotes
[edit]- ^An Essay on Trade and Transformation, Staffan Burenstam Linder, Stockholm: Almqvist & Wicksell, 1961.
- ^This means of estimating similar preferences (from income statistics) was first suggested by Linder, and has been used in studies ever since (see:Bohman, Helena; Nilsson, Désirée."Introducing income distribution to the Linder hypothesis"(PDF).pp. 2–3.).
- ^Robert C. Shelburne, A Ratio Test of Trade Intensity and Per-Capita Income Similarity, Weltwirtschaftliches Archiv, Volume 123, Heft 3 (Fall) 1987, pages 474-87.