Inequality, Nonhomothetic Preferences, and Trade: A Gravity Approach / Muhammed Dalgin, Devashish Mitra, Vitor Trindade.

Format:

Book

Author/Creator:

Dalgin, Muhammed.

Contributor:

National Bureau of Economic Research.

Mitra, Devashish.

Trindade, Vitor.

Series:

Working Paper Series (National Bureau of Economic Research) no. w10800.

NBER working paper series no. w10800

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Other Title:

Inequality, Nonhomothetic Preferences, and Trade

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2004.

Summary:

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.

Notes:

Print version record

September 2004.