Trade, Envy and Growth: International Status Seeking in a Two-Country World

This paper analyzes a two-country model with international status seeking: utility in the status-seeking country is affected by consump-tion gaps with the status leader. The analysis employs the bench-mark neoclassical growth model of trade, with asymmetric endow-ments and heterogeneous goods. In this setup, transboundary envy reshapes consumption behaviour and modifies transitional dynamics. It is shown that the status-seeker experiences consumption overshoot-ing: consumption per capita grows beyond the long-run equilibrium level, and approaches the steady-state from above. Terms-of-trade dynamics become non-monotonic, and there always exist a critical interval of time during which envy reverts the growth differential in favor of the initially poor country