Aggregate demand shifts, income distribution, and the Linder hypothesis

The intra-industry trade literature emphasizes non-homothetic preferences and incomes as important determinants of aggregate demand and trade patterns. We provide evidence for such preferences, particularly that the structure of income-driven demand shifts is related to indices of Linder-type product characteristics, and that income distribution is a significant factor in determining aggregate expenditures. These results imply that as general income levels rise, the relative volume of trade in manufactured consumer goods should rise, and the total volume of trade should rise, independent of changes in the intercountry difference between income levels.