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American Economic Review: Vol. 100 No. 5 (December 2010)

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International Trade and Income Differences

Article Citation

Waugh, Michael E. 2010. "International Trade and Income Differences." American Economic Review, 100(5): 2093-2124.

DOI: 10.1257/aer.100.5.2093

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 )

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Authors

Waugh, Michael E. (NYU)

JEL Classifications

F11: Neoclassical Models of Trade
F13: Trade Policy; International Trade Organizations
F14: Country and Industry Studies of Trade
O19: International Linkages to Development; Role of International Organizations


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