Inequality and Trade

We incorporate demand-side considerations in trade in a systematic but straightforward way. We do so by focusing on the role of inequality in the determination of trade flows and patterns. With nonhomothetic preferences, when countries are similar in all respects but asset inequality, we find that trade is driven by specialization in consumption, not production. These assumptions allow us to generate some interesting international spillover effects of redistributive policies. We also look at the effects of combining inequality and endowment differences on trade flows, and see that this has implications for the mystery of the missing trade.' We then study a model of monopolistic competition, and find a novel V-shaped relationship between the ratio of inter-industry to intra-industry trade and a country's inequality. Finally, we look at how international differences in factor endowments affect this relationship between the ratio of inter- to- intra-industry trade and inequality. Our theory formalizes as well as modifies Linder's conjecture about the relationship between intraindustry trade and the extent of similarity between trading partners.

Networks, Standards and Intellectual Property Rights

This paper reviews issues that lie at the intersection between intellectual property rights (IPR) and network effects, especially in the context of the global economy. Some of the relevant questions are: (1) How do IPR influence the provision of goods exhibiting network effects? (2) How do network effects in turn influence the creation of intellectual property? And (3) how do aspects of the global economy interact with both IPR and network effects? We synthesize what is known from the existing literature to answer these questions.Intellectual Property Rights, Network Effects, Globalization, Standards, Social Networks, Software Piracy

Neckties in the Tropics: A Model of International Trade and Cultural Diversity

Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are "compatible" with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. A reform of cultural policy suggested by our two-country analysis could be to remove import restrictions in the smaller country and replace them with subsidies to the fixed costs of production of new cultural goods in its traditional style.

Neckties in the Tropics: a Model of International Trade and Cultural Diversity

Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are “compatible†with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. Our two-country analysis suggests a reform of cultural policy whereby import restrictions in the smaller country are replaced by subsidies to the fixed costs of production of “authentic†new cultural goods, funded by contributions from the larger countryGains from trade; Cultural goods; Diversity; Network externalities

Neckties in the Tropics: A Model of International Trade and Cultural Diversity

Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are compatible with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. Our two-country analysis suggests a reform of cultural policy whereby import restrictions in the smaller country are removed, and are replaced by subsidies to the fixed costs of production of new cultural goods in its traditional style.consumption network externalities, home market effect, globalization, cultural policy

Inequality, Nonhomothetic Preferences, and Trade: A Gravity Approach

In this paper, we show that inequality is an important determinant of import demand, in that it augments the standard gravity model in a significant way. We interpret this result with the aid of a model in which tastes are nonhomothetic. Classification of products, based on the correlation between household budget shares in the US and income, into "luxuries" and "necessities," works very well in our analysis when we restrict the analysis to developed importing countries. While the imports of luxuries increase with the importing country's inequality, imports of necessities decrease with it. Furthermore, we find that an increase in the level of inequality in the importing country generally leads to an increase in imports from developed countries, and to a reduction in imports from low-income countries.

Inequality, Nonhomothetic Preferences, And Trade: A Gravity Approach

We construct the first direct classification of goods as luxuries or necessities that is compatible with international trade data. We then use it to test an idea that has not been tested directly in the literature: countries income distributions are important determinants of their import demand, and in particular of the difference in their import demands of luxuries versus necessities. We interpret this result with the aid of a model in which preferences are nonhomothetic, thus relaxing a long-held and standard but empirically dubious assumption in the theory of international trade. Our model is strongly borne out by the results: imports of luxuries increase with importing countrys inequality, and imports of necessities decrease with it. Our calculations imply that if income distribution in the United States became as equal as in Canada, the US would import about 9 13% less in luxury goods and 13 19% more in necessity goods.nonhomothetic tastes, gravity equation, inequality, luxuries, necessities

Networks, Standards and Intellectual Property Rights

This paper reviews issues that lie at the intersection between intellectual property rights (IPR) and network effects, especially in the context of the global economy. Some of the relevant questions are: (1) How do IPR influence the provision of goods exhibiting network effects? (2) How do network effects in turn influence the creation of intellectual property? And (3) how do aspects of the global economy interact with both IPR and network effects? We synthesize what is known from the existing literature to answer these questions

Neckties in the Tropics: A Model of International Trade and Cultural Diversity

Some cultural goods, like clothes and films, are consumed socially and are thus characterized by the same consumption network externalities as languages. At the same time, producers of new cultural goods in any one country draw on the stock of ideas generated by previous cultural production in all countries. For such goods, costless trade and communication tend to lead to the dominance of one cultural style, increasing utility in the short run but reducing quality and generating cultural stagnation in the long run. Increasing trade costs while keeping communication costs low may reduce welfare by stimulating production of cultural goods that are “compatible” with the dominant style, thereby capturing consumption network externalities, but that add little to the stock of usable ideas. Our two-country analysis suggests a reform of cultural policy whereby import restrictions in the smaller country are removed, and are replaced by subsidies to the fixed costs of production of new cultural goods in its traditional style