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

Simone Valente

No 06/53, CER-ETH Economics working paper series from CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich

Abstract: This paper analyzes international status seeking in a two-country model of endogenous growth: utility of agents in developing countries is a¤ected by con- sumption 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: Consumption externalities; international trade; two-country models. (search for similar items in EconPapers)
JEL-codes: D91 E21 F11 (search for similar items in EconPapers)
Pages: 24 pages
Date: 2006-06
New Economics Papers: this item is included in nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Working Paper: Trade, Envy and Growth: International Status Seeking in a Two-Country World (2006)
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