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International Trade and Volume Patterns under Quasilinear Preferences
Author(s) -
Dinopoulos Elias,
Fujiwara Kenji,
Shimomura Koji
Publication year - 2011
Publication title -
review of development economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.531
H-Index - 50
eISSN - 1467-9361
pISSN - 1363-6669
DOI - 10.1111/j.1467-9361.2010.00599.x
Subject(s) - economics , homothetic transformation , embedding , partition (number theory) , capital (architecture) , bilateral trade , microeconomics , econometrics , mathematical economics , mathematics , geometry , computer science , archaeology , combinatorics , artificial intelligence , law , political science , china , history
We formally analyze the pattern and volume of trade by embedding quasilinear preferences in the standard perfectly competitive, two‐factor, two‐good, two‐country trade model. Quasilinear preferences deliver a natural partition of the two goods into a luxury and a necessity, and preserve the validity of the Heckscher–Ohlin and Heckscher–Ohlin–Vanek theorems. In addition, the predicted factor content of trade under quasilinear preferences is smaller (larger) than the predicted factor content of trade under homothetic preferences if and only if the luxury good is capital (labor) intensive. This result offers a novel explanation for the “missing‐trade” mystery.