Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains
Journal
Journal of International Economics
ISSN
0022-1996
ISSN-Digital
1873-0353
Type
journal article
Date Issued
2010-05
Author(s)
Abstract
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.
Language
English
HSG Classification
contribution to scientific community
Refereed
Yes
Publisher
Elsevier
Publisher place
Amsterdam
Volume
81
Number
1
Start page
15
End page
25
Pages
11
Subject(s)
Eprints ID
184831