Does the Linder hypothesis hold? Recent Japanese case

The theory of comparative advantage has for a long time played one of the most important roles among the theories of international economics. The theory says that a country has to specialize in producing and exporting goods and services that the country can produce at lower opportunity cost than other goods and services. Achieving this, both countries can benefit. The Linder hypothesis focuses on internal demand in a country. It states that the pattern of export goods is determined by internal demand structure. This study empirically analyzes this Linder hypothesis for the recent case of Japan. The Gravity model can be used to obtain theory-consistent estimates of the Linder hypothesis. This model can estimate bilateral international trade on the basis of cross-section data. The results show that the Linder effect has been holding well. Also, FTA (Free Trade Agreement) has been having positive impacts on international trade.

An Empirical Investigation on the Validity of Linder Hypothesis for Manufacturing Exports from Turkey to Eurozone Countries

Linder's hypothesis expresses that non-homogenous manufacturing trade has been determined by the consumers’ tastes and preferences rather than production cost differences between countries. Also, it is claimed that the consumers’ tastes and preferences relate positively to the level of per capita income of the relevant country. Accordingly, the country pairs which have similar levels of per capita income trade each other more than other country pairs. This study analyses the validity of the Linder hypothesis in manufacturing exports from Turkey to 19 Eurozone countries for the period of 2002-2018. In compliance with the bilateral trade structure, an augmented gravity model is constructed with variables representing the Linder effect. Generally, convergence between country pairs in terms of per capita income is taken while testing the Linder hypothesis into account. Therefore, while testing the Linder hypothesis, the study considers per capita gross domestic product differences between Turkey and Eurozone countries. Besides, as a more salient and efficient tool, a similarity index representing the Linder effect is constructed. By doing so, whether the Linder hypothesis is valid or not can be demonstrated more robustly. Empirical results prove the existence of the Linder effect for Turkey's manufacturing exports to Eurozone countries. In other words, on the contrary of factor endowment differences, demand similarities between Turkey and Eurozone countries encourage this type of trade. In this regard, the exporters who target more manufacturing exports should monitor the course of consumer behaviors and adapt their product structure according to consumer's tastes and preferences in Eurozone countries.

PROCESSED FOOD TRADE OF EUROPEAN UNION COUNTRIES – THE GRAVITY APPROAC

A significant feature of world trade development is the diminishing role of developed countries in the international agri-food market. The share of the European Union in processed food export has been reducing steadily from 2000, giving place to developing countries at the same time. Considering studies devoted to the factors influencing bilateral trade, the question to what extent the trade of processed food depends on consumer preferences represented by absolute differences of GDP per capita (Linder hypothesis), geography, and trade liberalization remains open. It is interesting in the context of the new demand-oriented trade theory and the globalization process that causes a shrinking distance. The main purpose of the paper is to indicate the impact of consumer preferences and geography on the export value of processed food of EU countries in 2000-2019. To achieve this goal, the gravity model was constructed and estimated via Hausman-Taylor panel regression. The dependent variable was the bilateral export value of processed food of EU countries. The independent variables included GDP, geographical distance between partners, differences of GDP per capita of exporters and importers as a proxy of the Linder hypothesis, membership in a preferential trade agreement, and being landlocked. Research confirmed the validity of the Linder hypothesis and the significance of geography and regional trade integration in shaping the export value of processed food of EU countries.

Testing the Validity of Linder Hypothesis Using Gravity Model: The Case of Turkey and Selected Transition Economies

In this study, the validity of the Linder Hypothesis has been tested based on export and import intensity of foreign trade flows between Turkish economy and selected Transition Countries. According to this hypothesis, the more similar the demand structures and per capita income levels of countries, the more they will trade with one another. The hypothesis uses the difference between the per capita income of countries engaged in foreign trade as the main parameter and indicates that a fall in income difference between two countries increases the validity of the Linder hypothesis by increasing the intensity of foreign trade of the countries. The study considers selected Transition Countries having rising share of foreign trade with Turkey during the period 2001-2017 to examine the validity of Linder Hypothesis in the context of foreign trade flows employing Gravity Models that shows "Aggregate Linder Demand Effect" and panel data analysis. Test results does not support Linder hypothesis in terms of export and import intensity of foreign trade flows between Turkish economy and selected Transition Countries during 2001-2017, rather factor endowment does matter for inter-industry foreign trade.

ANALYSIS OF POLISH INTERNATIONAL TRADE WITH NEIGHBORING COUNTRIES, USING GRAVITY MODEL

The aim of the study was to examine whether there are non-tariff barriers (NTB s) in Poland’s trade with neighboring countries and in what amounts. For this purpose, a gravitational model of international trade was used, in which the parameters of selected variables were estimated in 4 agri-food sectors: agricultural raw materials, dairy products, food, fruit and vegetables, and meat products. The estimation of NTB s was the smallest in all sectors mentioned in Poland’s exports to Slovakia. The largest restrictions except for the dairy sector occur in Poland’s trade with Ukraine. The largest non-tariff barriers in Poland’s trade with neighbors occur in the agricultural raw materials sector, and the smallest in meat products. In addition, the model confirmed the veracity of the Linder hypothesis.

Testing the validity of the Linder hypothesis for Croatia

This paper presents empirical evidence on the validity of the Linder hypothesis in the case of Croatia. According to the Linder hypothesis, one of the new theories of international trade, countries with a similar level of income per capita should trade more. In order to investigate the trade pattern of Croatia's international trade, a panel regression model is formulated including 184 Croatia's import partner countries in the period from 2000 to 2016. The Linder effect was displayed and calculated using the Linder variable expressed as an absolute difference between GDP per capita of the importing and the exporting country. The cross-country panel regression model is estimated using Pooled OLS, Fixed and Random effects models. Results of the analysis have shown that the validity of the Linder hypothesis for Croatia cannot be accepted. Instead, the structure of Croatia's trade is in line with the gravity model of international trade.