Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains

Foellmi, Reto; Oechslin, Manuel (March 2010). Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains (Discussion Papers 10-06). Bern: Department of Economics

[img]
Preview
Text
dp1006.pdf - Published Version
Available under License Creative Commons: Attribution (CC-BY).

Download (339kB) | Preview

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

Division/Institute:

03 Faculty of Business, Economics and Social Sciences > Department of Economics

UniBE Contributor:

Föllmi, Reto and 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:

14 Oct 2020 14:40

JEL Classification:

O11, F13, O16

BORIS DOI:

10.7892/boris.145727

URI:

https://boris.unibe.ch/id/eprint/145727

Actions (login required)

Edit item Edit item
Provide Feedback