Linder Hypothesis

The Linder hypothesis is the idea that two countries with similar per capita income should be consuming similar quality stuff, so they should also probably be trading this similar quality stuff.

The Linder hypothesis underlies what you might learn in Econ 101 about how countries specialize in creating a good they’re good at making. Maybe they have absolute or competitive advantage, and they trade it with others who are doing the same, but with different goods. Like how France specializes in making wine and the U.S. specializes in making planes, and then they...trade.

If one country or the other had significantly lower GDP per capita, it’s hard to imagine as much trade happening. As lower GDP per capita countries are developing at a rapid pace...like SE Asia and China...these countries are becoming more and more like equal trade partners, and less and less like...well, everything that had “Made in China” on it, because it was so much cheaper to make stuff there. Those factories are now moving to African countries, making those countries the new heavy-factory countries, and China more like higher-GDP per capita countries.

Maybe one day we’ll all have high GDP per capita together...the Linder hypothesis at its maximum possibility.