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Income inequality, international trade and firm location

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  • Behzadan, Nazanin
  • Chisik, Richard

Abstract

In this paper we analyze the effect of within-country income inequality on economic outcomes. We develop a new model of international trade with non-homothetic preferences whereby within-country income distribution affects firm location decisions. In a two-country, three-sector framework with increasing returns to scale and positive trade costs we show that increases in income inequality generates firm movement to countries with more equal income distributions.

Suggested Citation

  • Behzadan, Nazanin & Chisik, Richard, 2022. "Income inequality, international trade and firm location," Economics Letters, Elsevier, vol. 214(C).
    • Handle: RePEc:eee:ecolet:v:214:y:2022:i:c:s0165176522000945
    DOI: 10.1016/j.econlet.2022.110442
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    References listed on IDEAS

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    1. Devashish Mitra & Vitor Trindade, 2005. "Inequality and trade," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 38(4), pages 1253-1271, November.
    2. Krugman, Paul, 1980. "Scale Economies, Product Differentiation, and the Pattern of Trade," American Economic Review, American Economic Association, vol. 70(5), pages 950-959, December.
    3. Javier Cravino & Andrei A. Levchenko, 2017. "The Distributional Consequences of Large Devaluations," American Economic Review, American Economic Association, vol. 107(11), pages 3477-3509, November.
    4. Pablo D. Fajgelbaum & Amit K. Khandelwal, 2016. "Measuring the Unequal Gains from Trade," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 131(3), pages 1113-1180.
    5. Rousseau, Jean-Jacques, 1755. "Discours Sur L'Origine et les Fondements de L'Inégalité parmi les Hommes," History of Economic Thought Books, McMaster University Archive for the History of Economic Thought, number rousseau1755.
    6. J. David Richardson, 1995. "Income Inequality and Trade: How to Think, What to Conclude," Journal of Economic Perspectives, American Economic Association, vol. 9(3), pages 33-55, Summer.
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    More about this item

    Keywords

    International trade; Inequality; Economic geography;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • D31 - Microeconomics - - Distribution - - - Personal Income and Wealth Distribution

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