A Re-Examination of the Linder Hypothesis: A Random-Effects Tobit Approach

This paper examines one of the main theories of international trade, the Linder hypothesis, using data from the OECD countries. The paper makes two primary contributions. First, significant empirical evidence is found in support of Linder's hypothesis regarding demand similarity for 18 of the 19 OECD countries under investigation here. Second, the use of a censored dependent variable in this analysis corrects a major methodological shortcoming in the existing literature by including data on all potential trading partners, even when the given OECD country has a zero or negative desire to export to that potential trading partner. [F10]