Inequality and Trade: A Behavioral-Economics Perspective

Sugata Marjit and Punarjit Roychowdhury

No 2015-08, Discussion Papers from University of Nottingham, GEP

Abstract: In this paper we present a version of the Mitra and Trindade (CJE, 38: 1253-1271, 2005) model to examine how differences in preexisiting levels of inequality between countries may determine the pattern of international trade when individual preferences are non-homothetic. In particular, using a standard 2x2x2 Heckscher-Ohlin framework, we propose a behavioral linkage between asset inequality and trade pattern by endogenizing non-homotheticity in terms of status dependent preferences. We show that for sufficiently high ratios of capital to labor earnings, there exists a critical level of inequality such that specificities of the pattern of trade that emerge between the two countries are contingent upon whether the inequality levels prevailing in the countries are above or below this level. For sufficiently low ratios of capital to labor earnings, however, the trade pattern is independent of the exisiting levels of inequality relative to the critical level. Based on our model, we examine the impact of the resultant trade pattern on the levels of income inequality. Finally, we discuss some interesting international spillover effects of redistributive policies.

Keywords: Heckscher-Ohlin Model; Income Inequality; Non-homothetic preferences; Social Status; Status good; Trade pattern. (search for similar items in EconPapers)
Date: 2015
New Economics Papers: this item is included in nep-cbe, nep-int and nep-pke
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.nottingham.ac.uk/gep/documents/papers/2015/2015-08.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:not:notgep:15/08

Access Statistics for this paper

More papers in Discussion Papers from University of Nottingham, GEP School of Economics University of Nottingham University Park Nottingham NG7 2RD. Contact information at EDIRC.
Bibliographic data for series maintained by Hilary Hughes ().