Inequality and Trade

Devashish Mitra () and Vitor Trindade ()

No 10087, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: We incorporate demand-side considerations in trade in a systematic but straightforward way. We do so by focusing on the role of inequality in the determination of trade flows and patterns. With nonhomothetic preferences, when countries are similar in all respects but asset inequality, we find that trade is driven by specialization in consumption, not production. These assumptions allow us to generate some interesting international spillover effects of redistributive policies. We also look at the effects of combining inequality and endowment differences on trade flows, and see that this has implications for the mystery of the missing trade.' We then study a model of monopolistic competition, and find a novel V-shaped relationship between the ratio of inter-industry to intra-industry trade and a country's inequality. Finally, we look at how international differences in factor endowments affect this relationship between the ratio of inter- to- intra-industry trade and inequality. Our theory formalizes as well as modifies Linder's conjecture about the relationship between intraindustry trade and the extent of similarity between trading partners.

JEL-codes: F1 (search for similar items in EconPapers)
Date: 2003-11
Note: ITI
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (22)

Published as Mitra, Devashish and Vitor Trindade. "Inequality And Trade," Canadian Journal of Economics, 2005, v38(4,Nov), 1253-1271.

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Journal Article: Inequality and trade (2005)
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