Project

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Economic Inequality and International Trade

English title Economic Inequality and International Trade
Applicant Zweimueller Josef
Number 132272
Funding scheme Sinergia
Research institution Institut für Empirische Wirtschaftsforschung Universität Zürich
Institution of higher education University of Zurich - ZH
Main discipline Economics
Start/End 01.01.2012 - 30.04.2015
Approved amount 970'539.00
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Keywords (14)

International Trade; Nonhomothetic Preferences; Inequality; Income distribution; Product quality; Monopolistic competition; Asymmetric Markups; Gravity equation; Growth; Intra-industry trade; Parallel imports; Structural change; Regional trade agreements; Capital market imperfections

Lay Summary (English)

Lead
Lay summary
In recent decades, the world has seen dramatic changes in economic
inequalities, both within and between countries. Several population-rich
countries have experienced unprecedented economic growth and hitherto
unknown prosperity for sizeable parts of their populations. In China, India,
Brazil, and other countries large middle classes have been emerging,
creating huge new consumer markets with a high export potential for the rest
of the world. Dramatic increases in inequality have also taken place within
industrialized countries, with more polarized income distributions and
eroding middle classes, particularly in the U.S. but also in other rich
economies. These trends have generated dramatic changes in the global
distribution of purchasing power, both within and across countries.

This project will study the implications of these large and changing
economic inequalities for the pattern and volume of international trade. The
basic approach of our project aims to extend the existing literature in two
ways. First, our focus is on the distribution of economic resources among world citizens. This is different from the majority of the existing
literature that emphasizes the distribution of economic resources across nations and abstracts from within-country inequality. How do the new
and growing middle classes in emerging markets affect the pattern of
international trade? How will rising inequalities within rich countries
affect trade structures and trade volumes? How will trade liberalizations
affect the poor and the middle classes in the developing and the developed
world? Our approach allows investigating such potentially important issues
that cannot be (easily) addressed within the standard frameworks in
international economics and macroeconomics. Second, on a more general basis,
we explore economic inequality as a potentially important determinant of
trade outcomes. This focus is quite different from a long tradition in
international economics that has been exploring the opposite chain of
causality: the impact of international trade on factor prices and the
resulting inequality in the distribution of income among households within
countries or among representative factor owners across countries.

Our project is both theoretically and empirically oriented. On the theoretical side, we aim to contribute to and extend the recent theories of
international trade in two ways. The main focus of our theoretical projects
will be to explore the implications of economic inequalities through the
channel of non-homothetic preferences. Our basic framework emphasizes
the extensive margin of consumption choices and builds upon empirically
relevant consumption patterns: rich households consume more types of goods
than poor households. This framework is rich enough to address the
interesting questions mentioned above. Yet it is simple and tractable enough
to cover a broad range of related issues such as trade and growth, the
quality and variety of trade, and international product cycles. A second
contribution of our project explores how income and wealth inequalities
affect trade flows through the channel of imperfect capital markets.
Here our goal is to contribute to the growing literature that explores to
which extent a country's financial development explains its economic
integration. While this literature explores the importance of access to
credit, only very few papers have looked at how this interacts with income
and wealth inequalities.

On the empirical side, we will extend the existing literature by a
strong focus on structural modeling. For decades, the empirical
analysis of the determinants of bilateral or multilateral trade has focused
on reduced-form empirical models, mostly along the lines of the so-called
gravity equation. In our analysis we intend to go beyond this empirical
tradition and take more seriously the opportunities arising from structural
empirical analysis of general equilibrium models of income inequality and
bilateral trade.
Direct link to Lay Summary Last update: 21.02.2013

Responsible applicant and co-applicants

Employees

Publications

Publication
Does Compulsory Voting Increase Support for Leftist Policy?
Bechtel Michael M., Hangartner Dominik, Schmid Lukas (2016), Does Compulsory Voting Increase Support for Leftist Policy?, in Americal Journal of Political Science, 60(3), 752-767.
Is Inequality Harmful for Innovation and Growth? Price versus Market Size Effects
Föllmi Reto, Zweimüller Josef (2016), Is Inequality Harmful for Innovation and Growth? Price versus Market Size Effects, in Journal of Evolutionary Economics, 26(1), 1-20.
On Measuring the Welfare Gains from Trade under Consumers Heterogeneity
Nigai Sergey (2016), On Measuring the Welfare Gains from Trade under Consumers Heterogeneity, in The Economic Journal, 126(593), 1193-1237.
Innovation, Trade, and Finance.
Egger Peter, Keuschnigg Christian (2015), Innovation, Trade, and Finance., in American Economic Journal: Microeconomics, 7(2), 121-157.
Income Distribution in Macroeconomic Models
Bertola Giuseppe, Föllmi Reto, Zweimüller Josef (2014), Income Distribution in Macroeconomic Models, Princeton University Press, Princeton.
Inequality and Growth: The Neglected Time Dimension
Halter Daniel, Oechslin Manuel, Zweimüller Josef (2014), Inequality and Growth: The Neglected Time Dimension, in Journal of Economic Growth, 19(1), 81-104.
Structural Estimation of Gravity Models with Path-Dependent Market Entry
Egger Peter, Pfaffermayr Michael (2014), Structural Estimation of Gravity Models with Path-Dependent Market Entry, Centre for Economic Policy Research, 2011, London.
The Macroeconomics of Model T
Föllmi Reto, Wuergler Tobias, Zweimüller Josef (2014), The Macroeconomics of Model T, in Journal of Economic Theory, 153(0022-0531 ), 617-647.
Trade, Wages, and Profits
Egger Peter, Kreickemeier Udo, Egger Hartmut (2013), Trade, Wages, and Profits, in European Economic Review, 64(11), 332-350.

Collaboration

Group / person Country
Types of collaboration
University of Bayreuth Germany (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
Swiss National Bank Switzerland (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Research Infrastructure
Ifo Institute, International Trade Germany (Europe)
- in-depth/constructive exchanges on approaches, methods or results
Tilburg University Netherlands (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication
Brown University United States of America (North America)
- in-depth/constructive exchanges on approaches, methods or results
Northwestern University United States of America (North America)
- in-depth/constructive exchanges on approaches, methods or results
University of Tübingen Germany (Europe)
- in-depth/constructive exchanges on approaches, methods or results
- Publication

Scientific events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
FinKT Final Conference: Knowledge transfer and entrepreneurship Talk given at a conference Optimal Patent Strength under Financial Constraints 16.04.2015 Rimini, Italy Kiedaisch Christian;
MidWest Trade Talk given at a conference Trade Effects of Income Inequality Within and Between Countries 12.10.2014 Michigan, United States of America Rydzek Benedikt;
Workshop Aussenwirtschaft SIAW-HSG Talk given at a conference The Brussels Leviathan: Implications for Swiss-based Multinationals 04.10.2014 St. Gallen, Switzerland Föllmi Reto;
SNF Sinergia Workshop on The Swiss Conferderation: A Natural Laboratory for Research on Fiscal and Political Decentralization Talk given at a conference Should I Stay or Should I Go? Tax-Induced Mobility and the ETI in Switzerland 19.09.2014 Zürich, Switzerland Martinez Isabel;
ETSG European Trade Study Group 2014 Talk given at a conference Capital Taxation, Investment, Growth, and Welfare 11.09.2014 München, Germany Rydzek Benedikt;
Meeting of the European Economic Association Talk given at a conference Trade Liberalization and Credit Constraints: Reallocations at the Firm Level 26.08.2014 Toulouse, France Legge Stefan;
70th Annual Congress of the International Institute of Public Finance IIPF Talk given at a conference Capital Taxation, Investment, Growth, and Welfare 20.08.2014 Lugano, Switzerland Rydzek Benedikt;
Warsaw International Economic Meeting Talk given at a conference Should I Stay or Should I Go? Tax-Induced Mobility and the ETI in Switzerland 11.07.2014 Warschau, Poland Martinez Isabel;
Warsaw International Economic Meeting Talk given at a conference Trade Liberalization and Credit Constraints: Reallocations at the Firm Level 10.07.2014 Warschau, Poland Legge Stefan;
CEPR/Sinergia Conference on Inequeality, Labor Markets and Trade Individual talk Arbitrage, Transaction Costs, and International Trade Flows 17.06.2014 Ascona, Switzerland Föllmi Reto;
SNF Sinergia CEPR Conference 2014 Poster On Measuring the Welfare Gains from Trade under Consumers Heterogeneity 17.06.2014 Ascona, Switzerland Nigai Sergey;
CEPR/Sinergia Conference Talk given at a conference Trade Liberalization and Credit Constraints: Reallocations at the Firm Level 16.06.2014 Ascona, Switzerland Legge Stefan;
SNF Sinergia - CEPR Conference on Economic Inequality, Labor Markets and International Trade (ILMIT) Talk given at a conference The Effect of Inequality on International Patent Applications 15.06.2014 Ascona, Switzerland Kiedaisch Christian;
Jahrestagung des Ausschuss für Aussenwirtschaftstheorie und Aussenpolitik des Vereins für Socialpolitik Talk given at a conference Globalization and Productivity in the Developing World 30.05.2014 Augsburg, Germany Föllmi Reto;
Annual Meeting Swiss Society for Economics and Statistics Talk given at a conference Trade Liberalization and Credit Constraints: Reallocations at the Firm Level 25.04.2014 Bern, Switzerland Föllmi Reto;
Research Seminar, University of Louvain Individual talk The threat of parallel imports and the extensive margin of international trade 15.04.2014 Louvain, Belgium Föllmi Reto;
Research Seminar, Swiss National Bank Individual talk Arbitrage, Transaction Costs, and International Trade Flows 14.02.2014 Bern, Switzerland Föllmi Reto;
Public Seminar at Faculty of Social Sciences Talk given at a conference Trade, Wages and Profits 16.12.2013 Charles University, Prague, Czech Republic Egger Peter;
UNCTAD Workshop Talk given at a conference Trade, Wages and Profits 09.12.2013 Genf, Switzerland Egger Peter;
UNCTAD Workshop on "Challenges in International Trade and Trade Policy in the Context of Post-2015 Development Goals" Talk given at a conference Globalization and Productivity in the Developing World 09.12.2013 Genf, Switzerland Föllmi Reto;
Research Seminar at University of Glasgow Talk given at a conference Trade, Wages and Profits 21.11.2013 University of Glasgow, Great Britain and Northern Ireland Egger Peter;
Research Seminar, DIW Berlin Talk given at a conference Globalization and Productivity in the Developing World 06.11.2013 Berlin, Germany Föllmi Reto;
Sinergia Workshop on Economic Inequality and International Trade Poster Volatile Top Income Shares in Switzerland? Reassessing the Evolution Between 1981 and 2008 24.10.2013 Diessenhofen, Switzerland Martinez Isabel;
Sinergia Workshop on Economic Inequality and International Trade Poster Trade effects of within and between country inequality 24.10.2013 Diessenhofen, Switzerland Rydzek Benedikt;
Sinergia Workshop on Economic Inequality and International Trade Talk given at a conference The Effects of Labor and Income Taxes and Trade and Welfare 24.10.2013 Diessenhofen, Switzerland Nigai Sergey;
Sinergia Workshop on Economic Inequality and International Trade Talk given at a conference The Effect of Inequality on International Patent Flows 24.10.2013 Diessenhofen, Switzerland Kiedaisch Christian;
Sinergia Workshop on Economic Inequality and International Trade Talk given at a conference Arbitrage and Trade Flows 24.10.2013 Diessenhofen, Switzerland Föllmi Reto;
Research Seminar, University of Lucerne Talk given at a conference Globalization and Productivity in the Developing World 23.10.2013 Luzern, Switzerland Föllmi Reto;
Midwest Economic Theory and Internartional Trade Meeting Talk given at a conference Trade effects of within and between country inequality 11.10.2013 Ann Arbor, United States of America Rydzek Benedikt;
Research Seminar, University of Cagliari Talk given at a conference Globalization and Productivity in the Developing World 11.10.2013 Cagliari, Italy Föllmi Reto;
Workshop at Universidad Jaume I (UJI), Castellón (SPAIN) Talk given at a conference Trade, Wages and Profits 27.09.2013 Universidad Jaume I (UJI), Spain Egger Peter;
European Trade Study Group Talk given at a conference Trade effects of within and between country inequality 12.09.2013 Birmingham, Great Britain and Northern Ireland Rydzek Benedikt;
ETSG European Trade Study Group 2013 Birmingham Talk given at a conference Trade Effects of Income Inequality Within and Between Countries 11.09.2013 Birmingham, Great Britain and Northern Ireland Rydzek Benedikt;
Conference on Power and Justice in the World-System Talk given at a conference Increasing Top Income Shares in Switzerland, Europe and the U.S. 09.08.2013 New York, United States of America Martinez Isabel;
Barcelona GSE Summer School on Labor Economics Talk given at a conference Volatile Top Income Shares in Switzerland? Reassessing the Evolution Between 1981 and 2008 08.07.2013 Barcelona, Spain Martinez Isabel;
XIV Conference on International Economics Talk given at a conference Trade effects of within and between country inequality 27.06.2013 Palma de Mallorca, Spain Rydzek Benedikt;
XIV Conference on International Economics Talk given at a conference Capital Taxation, Investment, Growth, and Welfare 27.06.2013 Palma de Mallorca, Spain Rydzek Benedikt;
Congress of the Swiss Sociological Society Talk given at a conference Volatile Top Income Shares in Switzerland? Reassessing the Evolution Between 1981 and 2008 26.06.2013 Bern, Switzerland Martinez Isabel;
Annual Meeting Swiss Society of Economics and Statistics Talk given at a conference Volatile Top Income Shares in Switzerland? Reassessing the Evolution Between 1981 and 2008 20.06.2013 Neuchâtel, Switzerland Martinez Isabel;
Research Seminar, Université de Paris Dauphine Talk given at a conference Non-homothetic preferences, parallel imports and the extensive margin of international trade 18.06.2013 Paris, France Föllmi Reto;
SNF Sinergia - CEPR Conference on: Economic Inequality, Labor Markets and International Trade Talk given at a conference Trade Effects of Income Inequality Within and Between Countries 16.06.2013 Ascona, Switzerland Rydzek Benedikt;
ISEO Summer School Talk given at a conference Trade Effects of Income Inequality Within and Between Countries 15.06.2013 Iseo, Italy Rydzek Benedikt;
The Financial Crisis, Integration and Contagion (INFINITI) Poster Selective International Financial Integration 10.06.2013 London, Great Britain and Northern Ireland Tarlea Filip;
CAGE International Trade Research Day Talk given at a conference Trade, Wages and Profits 22.05.2013 University of Warwick, Great Britain and Northern Ireland Egger Peter;
CESifo Area Conference on Global Economy 2013 Talk given at a conference On Measuring the Welfare Gains from Trade under Consumers Heterogeneity 17.05.2013 München, Germany Nigai Sergey;
CESifo Area Conference on Global Economy Talk given at a conference On Measuring the Welfare Gains from Trade under Consumer Heterogeneity 17.05.2013 München, Germany Nigai Sergey;
Conference “Globalization and Labor Market Outcomes : Recent Advances", Banque de France Talk given at a conference Trade, wages, and profits 16.05.2013 Paris, France Egger Peter;
Annual Meeting of the Austrian Economic Association Talk given at a conference Trade, Wages and Profits 10.05.2013 University of Innsbruck, Austria Egger Peter;
Royal Economic Society Conference 2012 Talk given at a conference On Measuring the Welfare Gains from Trade under Consumer Heterogeneity 03.04.2013 Royal Holloway, Great Britain and Northern Ireland Nigai Sergey;
WWWforEurope Conference on Modelling Growth and Socio-ecological Transition Talk given at a conference Inequality, Environmental Taxation, and Green Innovations 12.03.2013 Wien, Austria Kiedaisch Christian;
Trade Seminar, Universität Salzburg Talk given at a conference Trade, Wages and Profit 12.03.2013 Salzburg, Austria Egger Peter;
Presentation at CREST Talk given at a conference The Macroeconomics of Model T 02.03.2013 Paris, France Zweimueller Josef;
6th FIW Research Conference "International Economics" Talk given at a conference On Measuring the Welfare Gains from Trade under Consumer Heterogeneity 22.02.2013 Vienna, Austria Nigai Sergey;
6th FIW-Research Conference „International Economics“ Talk given at a conference On Measuring the Welfare Gains from Trade under Consumers Heterogeneity 22.02.2013 Wien, Austria Nigai Sergey;
5th Villars Research Workshop on International Trade Talk given at a conference On Measuring the Welfare Gains from Trade under Consumer Heterogeneity 06.02.2013 Villars-Sur-Ollo, Switzerland Nigai Sergey;
4th Sao Paulo School of Economics Conference Series Talk given at a conference The Macroeconomics of Model T 10.12.2012 Sao Paulo, Brazil Zweimueller Josef;
EIIT Empirical Investigations in International Trade Conference Talk given at a conference Trade, Wages and Profits 02.11.2012 Santa Cruz, CA 95064, United States of America Egger Peter;
XIII Conference on International Economics Talk given at a conference The Effects of Trade and Endogenous Technological Change on the College Wage Gap and Unemployment 20.06.2012 Granada, Spain Rydzek Benedikt;
CESifo Area Conference on Global Economy 2012 Talk given at a conference The Effects of Trade and Endogenous Technological Change on the College Wage Gap and Unemployment 25.05.2012 München, Germany Rydzek Benedikt;
Seminar talk at the Université de Nantes Talk given at a conference Trade, Wages and Profits 04.04.2012 Nantes, France Egger Peter;


Self-organised

Title Date Place
Sinergia Workshop 2013 - Economic Inequality and International Trade 24.10.2013 Diessenhofen, Switzerland
Ph.D. Seminar in Macroeconomics and Labor Markets HS13 26.09.2013 Zürich, Switzerland
Seminar on Growth and Development 13.05.2013 St. Gallen, Switzerland
Ph.D. Seminar in Macroeconomics and Labor Markets FS13 14.03.2013 Zürich, Switzerland
Seminar on International Economic Policy 22.11.2012 Zürich, Switzerland
Sinergia Workshop 2012 11.10.2012 Hurden, Switzerland

Knowledge transfer events

Active participation

Title Type of contribution Title of article or contribution Date Place Persons involved
UNCTAD Workshop on "Challenges in International Trade and Trade Policy in the Context of Post-2015 Development Goals" Talk 09.12.2013 Genf, Switzerland


Communication with the public

Communication Title Media Place Year
Print (books, brochures, leaflets) Entwicklungen auf dem Arbeitsmarkt und Folgen für das Lohngefüge, in: Avenir Suisse (ed.) German-speaking Switzerland 2012
Print (books, brochures, leaflets) Steigende Bildungsanforderungen an den Mittelstand, in: Avenir Suisse, Der strapazierte Mittelstand German-speaking Switzerland 2012

Awards

Title Year
Best Paper Prize, Warsaw International Economic Meeting, 2013 2013
Distinguished CESifo Affiliate Award (2013), CESifo Area Conference on Global Economy 2013
Young Economist Award 2013, 6th FIW Research Conference ‘International Economics’ 2013

Associated projects

Number Title Start Funding scheme
155804 Trade, Innovation and Labor Markets 01.02.2015 Temporary Backup Schemes
158823 Tax-Induced Mobility and the Taxable Income Elasticity in Switzerland 01.01.2015 Doc.Mobility
143399 Ungleichheit der Einkommen und Vermögen in der Schweiz von 1970 bis 2010 01.02.2013 Project funding (Div. I-III)
155369 Inequality and Growth in an Aging Population: The Role of Product Demand Shifts 01.09.2014 Doc.Mobility
154446 Inequality and Globalization: Demand versus Supply Forces and Local Outcomes 01.05.2015 Sinergia

Abstract

In recent decades, the world has seen dramatic changes in economic inequalities, both within and between countries. Several population-rich countries have experienced unprecedented economic growth and hitherto unknown prosperity for sizeable parts of their populations. In China, India, Brazil, and other countries large middle classes have been emerging, creating huge new consumer markets with a high export potential for the rest of the world. Dramatic increases in inequality have also taken place within industrialized countries, with more polarized income distributions and eroding middle classes, particularly in the U.S. but also in other rich economies. These trends have generated dramatic changes in the distribution of purchasing power both within and across countries around the globe.This project will study the implications of these large and changing economic inequalities for the pattern and volume of international trade. The basic approach of our project aims to extend the existing literature in two ways. First, our focus is on the distribution of economic resources among world citizens. This is different from the majority of the existing literature that emphasizes the distribution of economic resources across nations and abstracts from within-country inequality. How do the new and growing middle classes in emerging markets affect the pattern of international trade? How will rising inequalities within rich countries affect trade structures and trade volumes? How will trade liberalizations affect the poor and the middle classes in the developing and the developed world? Our approach allows investigating such potentially important issues that cannot be (easily) addressed within the standard frameworks ininternational economics and macroeconomics. Second, on a more general basis, we explore economic inequality as a potentially important determinant of trade outcomes. This focus is quite different from a long tradition in international economics that has been exploring the opposite chain of causality: the impact of international trade on factor prices and the distribution of income across factors of production within countries or across representative factor owners across countries.Our project is both theoretically and empirically oriented. On the theoretical side, we aim to contribute to and extend the recent theories ofinternational trade in two ways. First, the main focus of our theoretical projects will be to explore the implications of economic inequalitiesthrough the channel of non-homothetic preferences. Our basic framework emphasizes the extensive margin of consumption choices and builds upon empirically relevant consumption patterns: rich households consume more types of goods than poor households. This framework is rich enough to address the interesting questions mentioned above. Yet it is simple and tractable enough to cover a broad range of related issues such as trade and growth, the quality and variety of trade, and international product cycles.A second contribution of our project explores how income and wealth inequalities affect trade flows through the channel ofimperfect capital markets. Here our goal is to contribute to the growing literature that explores to which extent a country's financial development explains its economic integration. While this literature explores the importance of access to credit, only very few papers have looked at how this interacts with income and wealth inequalities.On the empirical side, we will extend the existing literature by a strong focus on structural modeling. For decades, the empirical analysis of the determinants of bilateral or multilateral trade has focused on reduced-form empirical models, mostly along the lines of the so-called gravity equation. In our analysis we intend to go beyond this empirical tradition and take more seriously the opportunities arising from structural empirical analysis of general equilibrium models of income inequality and bilateral trade.
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