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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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  1. Simone Valente, 2006. "Trade, Envy and Growth: International Status Seeking in a Two-Country World," CER-ETH Economics working paper series 06/53, CER-ETH - Center of Economic Research (CER-ETH) at ETH Zurich.
  2. Fisher, Walter H. & Hof, Franz X., 2005. "Status seeking in the small open economy," Journal of Macroeconomics, Elsevier, vol. 27(2), pages 209-232, June.
  3. Sergio Rebelo, 1999. "Long Run Policy Analysis and Long Run Growth," Levine's Working Paper Archive 2114, David K. Levine.
  4. Barro, Robert J & Sala-i-Martin, Xavier, 1997. " Technological Diffusion, Convergence, and Growth," Journal of Economic Growth, Springer, vol. 2(1), pages 1-26, March.
  5. V. V. Chari & Patrick J. Kehoe & Ellen R. McGrattan, 1996. "The Poverty of Nations: A Quantitative Exploration," NBER Working Papers 5414, National Bureau of Economic Research, Inc.
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  7. Corneo, Giacomo & Jeanne, Olivier, 1997. "On relative wealth effects and the optimality of growth," Economics Letters, Elsevier, vol. 54(1), pages 87-92, January.
  8. Par Hansson & Magnus Henrekson, 1994. "What makes a country socially capable of catching up?," Review of World Economics (Weltwirtschaftliches Archiv), Springer, vol. 130(4), pages 760-783, December.
  9. Feenstra, Robert C., 1996. "Trade and uneven growth," Journal of Development Economics, Elsevier, vol. 49(1), pages 229-256, April.
  10. Fisher, Walter H., 2001. "Current Account Dynamics in a Small Open Economy Model of Status Seeking," Economics Series 107, Institute for Advanced Studies.
  11. Gardner, Grant W & Kimbrough, Kent P, 1990. "The Effects of Trade-Balance-Triggered Tariffs," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 31(1), pages 117-29, February.
  12. Francisco Alvarez-Cuadrado, 2006. "Growth Outside The Stable Path: Lessons From The European Reconstruction," Departmental Working Papers 2006-02, McGill University, Department of Economics.
  13. Francisco Alvarez-Cuadrado, 2007. "Envy, leisure, and restrictions on working hours," Canadian Journal of Economics, Canadian Economics Association, vol. 40(4), pages 1286-1310, November.
  14. Jonathan Temple, 1999. "The New Growth Evidence," Journal of Economic Literature, American Economic Association, vol. 37(1), pages 112-156, March.
  15. Liu, Wen-Fang & Turnovsky, Stephen J., 2005. "Consumption externalities, production externalities, and long-run macroeconomic efficiency," Journal of Public Economics, Elsevier, vol. 89(5-6), pages 1097-1129, June.
  16. Acemoglu, Daron & Ventura, Jaume, 2001. "The World Income Distribution," CEPR Discussion Papers 2973, C.E.P.R. Discussion Papers.
  17. Young, Alwyn, 1991. "Learning by Doing and the Dynamic Effects of International Trade," The Quarterly Journal of Economics, MIT Press, vol. 106(2), pages 369-405, May.
  18. Jaime Alonso-Carrera & Jordi Caballé & Xavier Raurich, 2004. "Consumption Externalities, Habit Formation and Equilibrium Efficiency," Scandinavian Journal of Economics, Wiley Blackwell, vol. 106(2), pages 231-251, 06.
  19. Luis A. Rivera-Batiz & Paul M. Romer, 1990. "Economic Integration and Endogenous Growth," NBER Working Papers 3528, National Bureau of Economic Research, Inc.
  20. Francisco Alvarez-Cuadrado & Goncalo Monteiro & Stephen Turnovsky, 2004. "Habit Formation, Catching Up with the Joneses, and Economic Growth," Working Papers UWEC-2004-09-P, University of Washington, Department of Economics, revised Jan 2004.
  21. Abramovitz, Moses, 1986. "Catching Up, Forging Ahead, and Falling Behind," The Journal of Economic History, Cambridge University Press, vol. 46(02), pages 385-406, June.
  22. Lucas Bretschger & Thomas M. Steger, 2004. "The dynamics of economic integration: Theory and policy," International Economics and Economic Policy, Springer, vol. 1(2), pages 119-134, January.
  23. Christopher D. Carroll & Jody Overland & David N. Weil, 1997. "Comparison Utility in a Growth Model," NBER Working Papers 6138, National Bureau of Economic Research, Inc.
  24. Sjak Smulders, 2004. "International capital market integration: Implications for convergence, growth, and welfare," International Economics and Economic Policy, Springer, vol. 1(2), pages 173-194, January.
  25. Grossman, Gene M & Helpman, Elhanan, 1990. "Comparative Advantage and Long-run Growth," American Economic Review, American Economic Association, vol. 80(4), pages 796-815, September.
  26. Futagami, Koichi & Shibata, Akihisa, 1998. "Keeping one step ahead of the Joneses: Status, the distribution of wealth, and long run growth," Journal of Economic Behavior & Organization, Elsevier, vol. 36(1), pages 109-126, July.
  27. Frank, Robert H, 1997. "The Frame of Reference as a Public Good," Economic Journal, Royal Economic Society, vol. 107(445), pages 1832-47, November.
  28. Alwyn Young, 1991. "Learning by Doing and the Dynamic Effects of International Trade," NBER Working Papers 3577, National Bureau of Economic Research, Inc.
  29. Cole, Harold L & Mailath, George J & Postlewaite, Andrew, 1992. "Social Norms, Savings Behavior, and Growth," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1092-1125, December.
  30. repec:ner:tilbur:urn:nbn:nl:ui:12-143127 is not listed on IDEAS
  31. Chang-Tai Hsieh, 2002. "What Explains the Industrial Revolution in East Asia? Evidence From the Factor Markets," American Economic Review, American Economic Association, vol. 92(3), pages 502-526, June.
  32. Dale Jorgenson & Eric Yip, 2001. "Whatever Happened to Productivity Growth?," NBER Chapters, in: New Developments in Productivity Analysis, pages 509-540 National Bureau of Economic Research, Inc.
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