Abstract
Motivated by recent insights from behavioral economics and social psychology, we present a theory of trade that seeks to explain inter-industry trade between countries that are similar in their production sides, but differ in their income distribution. By assuming status-dependent preferences that are non-homothetic, we show that income inequality differential can be a basis for inter-industry trade between otherwise similar economies.
Acknowledgements
We are thankful to two anonymous referees for their constructive comments and suggestions. Marjit and Roychowdhury gratefully acknowledge financial support from the Centre for Training and Research in Public Finance and Policy, India and RBI endowment at the Centre for Studies in Social Sciences, India. Oladi acknowledges support from Utah Agricultural Experiment Station. All remaining errors are our own.
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