Gini in the bottle : Does income inequality (Gini) affect trade flows (bottle)?

Sammanfattning: Consumer studies are well known to assume non-homothetic preferences in their models, as the demand for a good can not be determined by assuming a single representative consumer. The question of how to include non-homothetic preferences into an empirical model for international trade is of importance as if not, the model exclude the demand side reason for trade. And does the effect look different regarding different types of goods. A significant share of countries GDP and the economic growth of a country is relying on trade; hence this question could be of great interest in order to determine trade policies. This thesis endeavoured to estimate the effect of income inequality in both exports and imports regarding one good classified as a luxury and necessity respectively. To accomplish this a Gravity model of trade that includes income distribution is conducted on the basis of an article by Mitra and Trindade(2005). Fixed effect analyses was implemented in order to analyse the data. Data on exports for the years 1995, 2000, 2005 and 2008-2011 gathered from the OECD databank was used in the study together with data on GDP per capita, Gini and population size provided by The World Bank Group. The analyses is based on the estimates of 41 countries. The results of the analyses point toward a possible negative relationship between a greater inequality in the exporting country yields less exports of luxury goods.