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Capital Constraints, Trade and Crowding Out of Southern Firms

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    Abstract

    Introducing capital market imperfections to a 'footloose capital'’model, I show how such distortions may explain the observed phenomena of an industrialized north and an underdeveloped south. Further, I show that with inter-generational savings internationalization will cause a crowding out of manufacturing firms in the south, increasing the share of the southern population that are credit-constrained, and also reducing total income in the country. This should not, however, be taken as an argument for protectionism, as welfare may indeed be higher with trade than in autarky, if trade costs are sufficiently low.

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    File URL: http://www.uib.no/filearchive/wp05.11.pdf
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    Bibliographic Info

    Paper provided by University of Bergen, Department of Economics in its series Working Papers in Economics with number 05/11.

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    Length: 57 pages
    Date of creation: 02 Feb 2011
    Date of revision:
    Handle: RePEc:hhs:bergec:2011_005

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    Postal: Institutt for økonomi, Universitetet i Bergen, Postboks 7802, 5020 Bergen, Norway
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    Web page: http://www.uib.no/econ/en
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    Keywords: Capital constraints; Home market effect; Gain from trade;

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    9. Vincent Dupont & Philippe Martin, 2006. "Subsidies to poor regions and inequalities: some unpleasant arithmetic," Journal of Economic Geography, Oxford University Press, vol. 6(2), pages 223-240, April.
    10. Ranjan, Priya, 2001. "Dynamic evolution of income distribution and credit-constrained human capital investment in open economies," Journal of International Economics, Elsevier, vol. 55(2), pages 329-358, December.
    11. Das, Satya P., 2006. "Trade, skill acquisition and distribution," Journal of Development Economics, Elsevier, vol. 81(1), pages 118-141, October.
    12. Martin, Philippe & Rogers, Carol Ann, 1994. "Industrial Location and Public Infrastructure," CEPR Discussion Papers 909, C.E.P.R. Discussion Papers.
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