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.
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The Review of Economics (Jahrbuch für Wirtschaftswissenschaften) is a peer-reviewed general interest journal publishing articles from all fields of economics with a strong policy focus. The journal aims to provide a forum for policy contributions and to influence the public debate.