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International Status Seeking, Trade, and Growth Leadership

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
Date of revision:
Handle: RePEc:eth:wpswif:07-75
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