Non-Homothetic Preferences and Labor Heterogeneity: The Effects of Income Inequality on Trade Patterns
This paper builds a two-country-two-sector trade model with a monopolistically competitive sector and non-homothetic preferences. It assumes the existence of two types of goods: necessities (which are homogeneous) and luxuries (which are differentiated) and heterogeneous labor. The implications of income inequality on trade patterns are examined. It also considers the effects of redistributive policies on the production structure and welfare of countries and concludes that: First, in autarky, the more unequal country produces a larger number of varieties; Second, the opening to trade will unambiguously increase the number of varieties consumed by any country, and hence, welfare; Third, the more equal country benefits more from trade liberalization. Fourth, a redistributive policy may harm some consumers not only by diminishing disposable income, but also by diminishing the number of varieties produced.
|Date of creation:||May 2008|
|Contact details of provider:|| Postal: Ludwigstraße 33, D-80539 Munich, Germany|
Web page: https://mpra.ub.uni-muenchen.de
More information through EDIRC
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Devashish Mitra & Vitor Trindade, 2005.
"Inequality and trade,"
Canadian Journal of Economics,
Canadian Economics Association, vol. 38(4), pages 1253-1271, November.
- Devashish Mitra & Vitor Trindade, 2003. "Inequality and Trade," NBER Working Papers 10087, National Bureau of Economic Research, Inc.
- Dixit, Avinash K & Stiglitz, Joseph E, 1977. "Monopolistic Competition and Optimum Product Diversity," American Economic Review, American Economic Association, vol. 67(3), pages 297-308, June.
- Dixit, Avinash K & Stiglitz, Joseph E, 1975. "Monopolistic Competition and Optimum Product Diversity," The Warwick Economics Research Paper Series (TWERPS) 64, University of Warwick, Department of Economics.
- Toru Kikuchi & Koji Shimomura & Dao-Zhi Zeng, 2006. "On the Emergence of Intra-industry Trade," Journal of Economics, Springer, vol. 87(1), pages 15-28, 01.
- Markusen, James R, 1986. "Explaining the Volume of Trade: An Eclectic Approach," American Economic Review, American Economic Association, vol. 76(5), pages 1002-1011, December.
- Spiros Bougheas & Raymond Riezman, 2013. "Trade and the distribution of human capital," World Scientific Book Chapters, in: International Trade Agreements and Political Economy, chapter 20, pages 395-407 World Scientific Publishing Co. Pte. Ltd..
When requesting a correction, please mention this item's handle: RePEc:pra:mprapa:13385. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Joachim Winter)
If references are entirely missing, you can add them using this form.