Authors:Martin Grančay, Nóra Grančay and Jolita Vveinhardt
In 1961, Staffan Linder attacked mainstream trade economics by diverging from the generally accepted factor endowments theory and focusing on alternative explanations of why countries trade with each other. He was among the first economists to recognise the growing importance of intraindustry trade and presented his hypothesis that the more similar the per capita income levels of countries, the more they tend to trade with each other. This observation has since become one of the main pillars of modern trade theory. The present paper assesses the empirical validity of the Linder hypothesis in the Visegrad countries. Using a variant of the gravity model, it finds that when controlling for other factors, the Visegrad countries tend to trade more with countries with similar per capita income levels than with significantly richer or poorer countries. This observation is consistent with the Linder hypothesis. OLS regressions, Tobit regressions, and robustness checks all support the hypothesis.
The paper applies a variant of the gravity model to test whether there is a positive link between the size of trade flows and the extent to which they follow the pattern of comparative advantage. Using UNCTAD's 2016 trade data for every country in the world, and 255 merchandise items, we show that countries trading more with each other tend to follow the patterns of comparative advantages more than countries with smaller mutual trade flows. While smaller trade flows can be easily influenced by business decisions of individual companies or one-off trade contracts going against trade pattern predictions, this is not the case with larger flows. We also find signs that holding trade volume constant, more distant countries trade less than geographically proximate countries, in line with predictions from comparative advantage. The results are valid for the whole database of all country pairs in world trade, but the goodness of fit increases with the number of items these country pairs trade in. The paper is the first insight into the topic and can be expanded to a higher level of disaggregation and more variables in future research.
Authors:Martin Grančay, Ērika Šumilo and Jolita Vveinhardt
The paper focuses on the effects of EU’s Eastern Enlargement of 2004 on trade convergence within the EU and among the new member states from Central and Eastern Europe (CEE-8). Using sigma-convergence approach, it finds evidence of convergence of exports and imports per capita as well as of productivity levels associated with the member states’ export baskets. Convergence of territorial and commodity structures of trade has not occurred; conversely, divergence has been observed, leading to the possible conclusion that multinational companies have adjusted their production structure in facilities across the EU to achieve higher economies of scale. Correlation analysis shows that revealed comparative advantages of the old and new member states have come closer to each other. As an example, the paper also offers a brief comparison of trade development in two CEE-8 countries, Latvia and Slovakia, after their entry into the EU.