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Does Income and Income Distribution Determine Global Food and Beverage Products Trade?



The author investigates the role of income in explaining the trade of 46 differentiated food and beverage products across 52 developed and developing countries. The Heckman maximum likelihood procedure with fixed effects was used to explore the role of income in explaining bilateral trade flows. The study finds that income but not income distribution is an important determinant of food products trade and the hypothesis that income does not influence food and beverage product trade is consistently rejected. For most of the food products, the empirical results reject the proposition that income elasticities are the same across the development spectrum. The assumption of homothetic preferences (expenditure elasticities equal to one) was most consistently rejected for middle-income countries, but rarely rejected for lower- and high-income countries. The results suggest that income plays an important role in food trade, and middle-income countries are the growth markets of the future.