Extending the Linder’s Hypothesis: Incorporating Employment Composition in the Sector-Specific Bilateral Trade Analysis

Scholarly discussions have seen a renewed interest in the resurgence of the Linder's hypothesis in the international trade. Within the framework of the hypothesis we suppose that countries tend to engage in trade with each other more in case they have similar demand structures and preferences. By following the concept that similar prefernces develop similar economies, in this paper we test the Linder hypothesis by adding the employment composition component of OECD member countries to the analysis. We are testing the validity of the Linder's hypothesis by incorporating the employment component of three major sectors of the economy: Health, education and construction. By conducting an OLS regression analysis we came to the conclusion, that similar emplyment composition structure (the number of the registered workers employed in the sector) in the Education and Construction sectors is positively correlated with the bilateral trade volumes among the observed OECD countries, while such evidence was not found for the Health sector.