TY  - JOUR
AU  - Mitra,Devashish
AU  - Trindade,Vitor
TI  - Inequality and Trade
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10087
PY  - 2003
Y2  - November 2003
UR  - http://www.nber.org/papers/w10087
L1  - http://www.nber.org/papers/w10087.pdf
N1  - Author contact info:
Devashish Mitra
Department of Economics
The Maxwell School of Citizenship and
Public Affairs
133, Eggers Hall, Syracuse University
Syracuse, NY  13244
Tel: 315/443-6143
Fax: 315/443-3717
E-Mail: dmitra@maxwell.syr.edu

Vitor Trindade
University of Missouri
Department of Economics
Columbia, MO  65211
E-Mail: TrindadeV@missouri.edu
AB  - We incorporate demand-side considerations in trade in a systematic but straightforward way. We do so by focusing on the role of inequality in the determination of trade flows and patterns. With nonhomothetic preferences, when countries are similar in all respects but asset inequality, we find that trade is driven by specialization in consumption, not production. These assumptions allow us to generate some interesting international spillover effects of redistributive policies. We also look at the effects of combining inequality and endowment differences on trade flows, and see that this has implications for  the mystery of the missing trade.' We then study a model of monopolistic competition, and find a novel V-shaped relationship between the ratio of inter-industry to intra-industry trade and a country's inequality. Finally, we look at how international differences in factor endowments affect this relationship between the ratio of inter- to- intra-industry trade and inequality. Our theory formalizes as well as modifies Linder's conjecture about the relationship between intraindustry trade and the extent of similarity between trading partners.
ER  -