Working Papers
Income Distribution, Welfare, and the Patterns of Trade (2025) [CESifo WP]
We develop a two-country model of international trade featuring non-homothetic preferences and income inequality, generating a price schedule where cheap necessities coexist with expensive luxury goods. A central mechanism driving price differences is firm’s ability to shift fixed costs between countries, shaping trade patterns and welfare. In a North–South setting, poor consumers in the rich country are most negatively affected by this fixed cost shifting, leading to a Manhattan effect. Following mean-preserving redistribution, import volumes rise in the unequal country and fall in the more equal one. In an open economy, strictly more consumers lose out from increased inequality compared to the autarky case, due to firms adjusting their pricing-to-market behaviour.
Parallel Trade Policy in General Equilibrium (2024) [paper]
We introduce a simple two-country, monopolistic competition model of parallel trade policy with potentially imperfect enforcement of parallel trade prohibition. Consumers have 0/1 preferences such that large per capita income differences can induce some Northern firms to refrain from exporting to the South in order to avoid international arbitrage. We show that parallel trade restrictions have a pro-competitive effect on prices and change the terms of trade in favor of the poor country. Hence, the South prefers to ban parallel trade while the North prefers to allow it. The global welfare-maximising policy is to forbid parallel trade. Moreover, trade liberalisation increases the terms of trade of the South if there is a sufficiently strong parallel trade prohibition.