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International Status Seeking, Trade, and Growth Leadership

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Author Info
Simone Valente () (ETH Zurich, Department of Management, Technology, and Economics)

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Abstract

This paper formalizes international status seeking in a two-country model of endogenous growth: utility of agents in developing countries is affected by consumption gaps with advanced economies. By distorting intertemporal choices, envy tends to revert growth differentials in favor of the developing country when traded goods are substitutes. Notably, asymmetric pref- erences with endogenous status desire generate (i) convergence in growth rates in the presence of structural gaps, and (ii) convergence in income levels, if productivity differences are absorbed by technology diffusion. This process is driven by declining terms of trade and faster capital accumulation of the status seeker. A calibration exercise shows that the model predictions are consistent with the stylized facts that characterized the growth performance of East Asian economies.

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Paper provided by CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich in its series CER-ETH Economics working paper series with number 07/75.

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Length: 35 pages
Date of creation: Oct 2007
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Handle: RePEc:eth:wpswif:07-75

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Related research
Keywords: Endogenous Growth; International Trade; Consumption Externalities; Productivity Differences; Status Seeking; Technology Diffusion;

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Find related papers by JEL classification:
O33 - Economic Development, Technological Change, and Growth - - Technological Change - - - Technological Change: Choices and Consequences; Diffusion Processes
F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies
D91 - Microeconomics - - Intertemporal Choice and Growth - - - Intertemporal Consumer Choice; Life Cycle Models and Saving

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  14. Hans Gersbach & Hans Haller, 2007. "Hierarchical Trade and Endogenous Price Distortions," CER-ETH Economics working paper series 07/72, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich. [Downloadable!]
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