Regional Implications of Financial Market Development: Industry Location and Income Inequality

von Ehrlich, Maximilian; Seidel, Tobias (October 2013). Regional Implications of Financial Market Development: Industry Location and Income Inequality (CRED Research Paper 1). Bern: CRED - Center for Regional Economic Development

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We develop a heterogeneous-firms model with trade in goods, labor mobility and credit constraints due to moral hazard. Mitigating financial frictions reduces the incentive of high-skilled workers to migrate to one region such that an unequal distribution of industrial activity becomes less likely. Hence, financial market development has opposite regional implications as trade liberalization. While the former leads to more dispersion of economic activity across space, the latter tends to drive clustering. This has immediate implications for income inequality both between regions and skill groups. According to our model, financial development reduces inequality in both dimensions.

Item Type:

Working Paper

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics
03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics > Economic Policy and Regional Economics
03 Faculty of Business, Economics and Social Sciences > Department of Economics > Institute of Economics
11 Centers of Competence > Center for Regional Economic Development (CRED)

UniBE Contributor:

v. Ehrlich, Maximilian

Subjects:

300 Social sciences, sociology & anthropology > 330 Economics

Series:

CRED Research Paper

Publisher:

CRED - Center for Regional Economic Development

Language:

English

Submitter:

Melanie Moser

Date Deposited:

28 Apr 2020 13:43

Last Modified:

28 Apr 2020 13:43

BORIS DOI:

10.7892/boris.143549

URI:

https://boris.unibe.ch/id/eprint/143549

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