Report

International trade and income differences

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.

Keywords: Developing countries; Developed countries; Trade; Exports;

Bibliographic Information

Provider: Federal Reserve Bank of Minneapolis

Part of Series: Staff Report

Publication Date: 2009

Number: 435