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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. 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. 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.
    4. 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.
    5. 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.
    6. 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.
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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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