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

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.

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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 06/53.

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Length: 24 pages
Date of creation: Jun 2006
Handle: RePEc:eth:wpswif:06-53
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Keywords: Consumption externalities; international trade; two-country models.;

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Find related papers by JEL classification:
  • D91 - Microeconomics - - Micro-Based Behavioral Economics - - - Role and Effects of Psychological, Emotional, Social, and Cognitive Factors on Decision Making
  • E21 - Macroeconomics and Monetary Economics - - Consumption, Saving, Production, Employment, and Investment - - - Consumption; Saving; Wealth
  • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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Cited by:

  1. Fujisaki, Seiya, 2013. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," Economic Modelling, Elsevier, vol. 35(C), pages 597-603.
  2. Simone Valente, 2009. "International status seeking, trade, and growth leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 554-589, May.
  3. Fujisaki, Seiya, 2012. "Taylor rules and equilibrium determinacy in a two-country model with non-traded goods," MPRA Paper 40023, University Library of Munich, Germany.

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