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    Linder hypothesis

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    Suppose that you test the Linder hypothesis by comparing Germany's absolute difference in per capita income from each of its trading partners with the size of Germany's total trade with each respective partner. You find a strongly negative correlation. Do you thus conclude that the Linder hypothesis must necessarily offer a good explanation of Germany's trade? Why or why not?

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    The Linder hypothesis was proposed by economist Staffan Burenstam Linder in 1961 as a possible resolution to the Leontief paradox. It suggests that demand is more important than comparative advantage for determining trade patterns. Linder hypothesized that nations with similar demands would develop similar industries. These nations would then trade with each other in similar ...

    Solution Summary

    Linder hypothesis is considered.