Foellmi, Reto; Oechslin, Manuel (March 2010). Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains (Discussion Papers 10-06). Bern: Department of Economics
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Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these
imperfections seriously, we analyze how credit frictions affect the distributive impact of
trade liberalizations. We find that free trade significantly widens income differences among
firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business
people lose. Intuitively, with integrated markets, profit margins shrink — which makes
access to credit particularly difficult for the least affluent agents. Richer entrepreneurs, by
contrast, win because they can take advantage of new export opportunities. Our findings
resonate well with a number of empirical regularities, in particular with the observation
that some liberalizing LDCs have observed a surge in top-income shares.
Item Type: |
Working Paper |
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Division/Institute: |
03 Faculty of Business, Economics and Social Sciences > Department of Economics |
UniBE Contributor: |
Föllmi, Reto, Oechslin, Manuel |
Subjects: |
300 Social sciences, sociology & anthropology > 330 Economics |
Series: |
Discussion Papers |
Publisher: |
Department of Economics |
Language: |
English |
Submitter: |
Lars Tschannen |
Date Deposited: |
14 Oct 2020 14:40 |
Last Modified: |
05 Dec 2022 15:39 |
JEL Classification: |
O11, F13, O16 |
BORIS DOI: |
10.7892/boris.145727 |
URI: |
https://boris.unibe.ch/id/eprint/145727 |
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