Empirical Analysis of the Linder Hypothesis: The Case of Germany's Trade Within Europe

Abstract

This paper uses panel data with country- and time- fixed-effects to examine the empirical validity of the Linder hypothesis for Germany's international trade within Europe. My results imply that Germany trades more intensively with countries with similar per capita income levels, which reaffirms the Linder hypothesis. This paper has two further contributions. First, the estimation of Germany's exports in addition to its imports empirically confirms the economy's orientation towards exports. Second, the analysis of an EU-membership variable suggests that Germany primarily caters its exports towards European countries with similar demand structures.

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