An Empirical Analysis of the Linder Theory of International Trade for South Asian Countries

This paper presents empirical evidence in support of the Linder theory of international trade for three of the South Asian countries, Bangladesh, India, and Pakistan. This finding implies that these countries trade more intensively with countries of other regions, which may have similar per capita income levels, as predicted by Linder in his hypothesis. The contribution of this research is threefold: first, there is new information on the Linder hypothesis by focusing on South Asian countries; second, this is one of very few analyses to capture both time-series and cross-section elements of the trade relationship by employing a panel data set; third, the empirical methodology used in this analysis corrects a major shortcoming in the existing literature by using a censored dependent variable in estimation.