Trade, Envy and Growth: International Status Seeking in a Two-Country World

Valente, Simone (2006): Trade, Envy and Growth: International Status Seeking in a Two-Country World.

Abstract

This paper analyzes international status seeking in a two-country model of endogenous growth: utility of agents in developing countries is affected by consumption gaps with the average consumer in advanced economies. By distorting terms of trade, status seeking: (i) may compensate for structural gaps in physical productivity, inducing convergence; (ii) may revert the link between trade and growth; and (iii) induces divergence when interacting with technological catching-up. In particular, envy in conjunction with catching-up predicts switchovers of growth leadership: when the advanced economy is both status- and technology-leader in the short run, convergence in interest rates - e.g. due to R&D spillovers - implies that the initially lagging economy becomes growth-leader in the long run, due to permanent price distortions induced by envy.

• Item Type: MPRA Paper
• Institution: CER ETH Zurich
• Language: English
• Keywords: Endogenous Growth; International Trade; Consumption Externalities; Productivity Di¤erences; Status Seeking; Technology Diffusion
• Subjects: O - Economic Development, Innovation, Technological Change, and Growth > O3 - Innovation ; Research and Development ; Technological Change ; Intellectual Property Rights > O33 - Technological Change: Choices and Consequences ; Diffusion Processes; F - International Economics > F1 - Trade > F12 - Models of Trade with Imperfect Competition and Scale Economies ; Fragmentation; D - Microeconomics > D9 - Intertemporal Choice > D91 - Intertemporal Household Choice ; Life Cycle Models and Saving