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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
Date of revision:
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 - - Intertemporal Choice - - - Intertemporal Household Choice; Life Cycle Models and Saving
  • 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. 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.
  3. Simone Valente, 2009. "International status seeking, trade, and growth leadership," Canadian Journal of Economics, Canadian Economics Association, vol. 42(2), pages 554-589, May.

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