Trade Liberalization and Welfare Inequality: a Demand-Based Approach

Arbeitspapier

There is strong evidence that different income groups consume different bundles of goods. This evidence suggests that trade liberalization can affect welfare inequality within a country via changes in the relative prices of goods consumed by different income groups (the price effect). In this paper, I develop a framework that enables us to explore the role of the price effect in determining welfare inequality. There are two core elements in the model. First, I assume that heterogenous in income consumers share identical but nonhomothetic preferences. Secondly, I consider a monopolistic competition environment that leads to variable markups affected by trade and trade costs. I �nd that trade liberalization does affect the prices of different goods differently and, as a result, can bene�fit some income classes more than others. In particular, I show that the relative welfare of the rich with respect to that of the poor has a hump shape as a function of trade costs.

Object Details

• Language: Englisch

References and Relationships

• Bibliographic citation: Series: Munich Discussion Paper ; No. 2010-26

Classification and Topics

• Classification: Wirtschaft ; Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
• Subject: nonhomothetic preferences ; income distribution ; monopolistic competition ; Handelsliberalisierung ; Produktdifferenzierung ; Monopolistischer Wettbewerb ; Außenhandelsgewinn ; Soziale Ungleichheit ; Konsumentenverhalten ; Einkommensverteilung ; Präferenztheorie ; Wohlfahrtsanalyse ; Theorie

Contributors, Places and Time

• Event: Geistige Schöpfung
• (who): Tarasov, Alexander
• Event: Veröffentlichung
• (who): Ludwig-Maximilians-Universität München, Volkswirtschaftliche Fakultät
• (where): München
• (when): 2010

Further information

• DOI: doi:10.5282/ubm/epub.11492
• Handle: http://hdl.handle.net/10419/104299
• URN: urn:nbn:de:bvb:19-epub-11492-5
• Last update: 10.03.2025, 11:44 AM CET