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Income inequality, international trade and firm location

Author

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  • Behzadan, Nazanin
  • Chisik, Richard

Abstract

In this paper we analyze the effect of within-country income inequality on economic outcomes. We develop a new model of international trade with non-homothetic preferences whereby within-country income distribution affects firm location decisions. In a two-country, three-sector framework with increasing returns to scale and positive trade costs we show that increases in income inequality generates firm movement to countries with more equal income distributions.

Suggested Citation

  • Behzadan, Nazanin & Chisik, Richard, 2022. "Income inequality, international trade and firm location," Economics Letters, Elsevier, vol. 214(C).
    • Handle: RePEc:eee:ecolet:v:214:y:2022:i:c:s0165176522000945
    DOI: 10.1016/j.econlet.2022.110442
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    References listed on IDEAS

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    1. Devashish Mitra & Vitor Trindade, 2005. "Inequality and trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(4), pages 1253-1271, November.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    4. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 33-55, Summer.
    5. Javier Cravino & Andrei A. Levchenko, 2017. "The Distributional Consequences of Large Devaluations," American Economic Review, American Economic Association, vol. 107(11), pages 3477-3509, November.
    6. Rousseau, Jean-Jacques, 1755. "Discours Sur L'Origine et les Fondements de L'Inégalité parmi les Hommes," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number rousseau1755.
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    More about this item

    Keywords

    International trade; Inequality; Economic geography;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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