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Income Inequality, International Trade and Firm Location

Author

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  • Richard Chisik

    (Department of Economics, Ryerson University, Toronto, Canada)

  • Nazanin Behzadan

    (Department of Economics, University of Prince Edward Island, Charlottetown, Canada)

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 an increase in income inequality can generate firm movement to the country with a more equal income distribution.

Suggested Citation

  • Richard Chisik & Nazanin Behzadan, 2021. "Income Inequality, International Trade and Firm Location," Working Papers 81, Toronto Metropolitan University, Department of Economics.
    • Handle: RePEc:rye:wpaper:wp81
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    References listed on IDEAS

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    1. 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.
    2. 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.
    3. 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.
    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. 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.
    6. 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.
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    Cited by:

    1. Bakouan, Pousseni & Sawadogo, Relwendé, 2024. "BioTrade and income inequality: Does frontier technology readiness matter?," Structural Change and Economic Dynamics, Elsevier, vol. 70(C), pages 650-665.

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    More about this item

    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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