Income Inequality as a Determinant of Trade Flows

Abstract

Abstract Consumer studies have a long tradition of incorporating non-homothetic preferences in their models, whereas this has been a very uncommon procedure in studies of international trade. We use a model from Mitra and Trindade (2005) to set up a gravity model in which we include income distribution measures as explanatory variables for the exporting as well as for the importing countries. Our results indicate that non-homothetic preferences significantly affect both exports and imports.

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