Trade, Envy and Growth: International Status Seeking in a Two-Country World

Simone Valente

MPRA Paper from University Library of Munich, Germany

Abstract: This paper analyzes international status seeking in a two-country model of endogenous growth: utility of agents in developing countries is affected by consumption gaps with the average consumer in advanced economies. By distorting terms of trade, status seeking: (i) may compensate for structural gaps in physical productivity, inducing convergence; (ii) may revert the link between trade and growth; and (iii) induces divergence when interacting with technological catching-up. In particular, envy in conjunction with catching-up predicts switchovers of growth leadership: when the advanced economy is both status- and technology-leader in the short run, convergence in interest rates - e.g. due to R&D spillovers - implies that the initially lagging economy becomes growth-leader in the long run, due to permanent price distortions induced by envy.

Keywords: Endogenous Growth; International Trade; Consumption Externalities; Productivity Di¤erences; Status Seeking; Technology Diffusion (search for similar items in EconPapers)
JEL-codes: O33 F12 D91 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-dev and nep-int
Date: 2006-07
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Working Paper: Trade, Envy and Growth: International Status Seeking in a Two-Country World (2006)
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Persistent link: http://EconPapers.repec.org/RePEc:pra:mprapa:1095

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