TY  - JOUR
AU  - Dalgin,Muhammed
AU  - Mitra,Devashish
AU  - Trindade,Vitor
TI  - Inequality, Nonhomothetic Preferences, and Trade: A Gravity Approach
JF  - National Bureau of Economic Research Working Paper Series
VL  - No. 10800
PY  - 2004
Y2  - September 2004
UR  - http://www.nber.org/papers/w10800
L1  - http://www.nber.org/papers/w10800.pdf
N1  - Author contact info:
Muhammed H. Dalgin
E-Mail: sufHallumDalgin@gmail.com

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  - In this paper, we show that inequality is an important determinant of import demand, in that it augments the standard gravity model in a significant way. We interpret this result with the aid of a model in which tastes are nonhomothetic. Classification of products, based on the correlation between household budget shares in the US and income, into "luxuries" and "necessities," works very well in our analysis when we restrict the analysis to developed importing countries. While the imports of luxuries increase with the importing country's inequality, imports of necessities decrease with it. Furthermore, we find that an increase in the level of inequality in the importing country generally leads to an increase in imports from developed countries, and to a reduction in imports from low-income countries.
ER  -