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 non-homothetic preferences, when countries are similar in all respects but asset inequality, we find that trade is driven by specialization in , not production. Besides, these assumptions allow us to generate some interesting international spillover effects of redistributive policies. Finally, we 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.