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On the Role of Financial Frictions and the Saving Rate during Trade Liberalizations

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  • Caballero, Richard J.
  • Antras, Pol

Abstract

We study how financial frictions and the saving rate shape the long-run effects of trade liberalization on income, consumption and the distribution of wealth in financially underdeveloped economies. In our model, regardless of whether the capital account is open or not, trade liberalization reduces the share of wealth in the hands of entrepreneurs and may well reduce steady state consumption and income. Furthermore, trade opening is more likely to reduce steady-state consumption and output, the higher is the level of financial development. For economies with an open capital account, a higher saving rate also increases the likelihood that a trade liberalization leads to a reduction in steady-state consumption and output.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4784027/Antras_FinancialFrictions.pdf
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Bibliographic Info

Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4784027.

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Date of creation: 2010
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Publication status: Published in Journal of the European Economic Association
Handle: RePEc:hrv:faseco:4784027

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  1. Chesnokova, Tatyana, 2007. "Immiserizing deindustrialization: A dynamic trade model with credit constraints," Journal of International Economics, Elsevier, Elsevier, vol. 73(2), pages 407-420, November.
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Cited by:
  1. Pranab Bardhan & Dilip Mookherjee & Masatoshi Tsumagari, 2013. "Middlemen Margins and Globalization," American Economic Journal: Microeconomics, American Economic Association, American Economic Association, vol. 5(4), pages 81-119, November.
  2. Real Arai & Takuma Kunieda & Keigo Nishida, 2014. "Is Public Debt Growth-Enhancing or Growth-Reducing?," KIER Working Papers, Kyoto University, Institute of Economic Research 884, Kyoto University, Institute of Economic Research.
  3. Tarishi Matsuoka & Katsuyuki Naito & Keigo Nishida, 2011. "The Politics of Financial Development and Capital Accumulation," KIER Working Papers, Kyoto University, Institute of Economic Research 793, Kyoto University, Institute of Economic Research.
  4. Mario Larch & Wolfgang Lechthaler, 2013. "Whom to send to Doha? The Short-sighted Ones!," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(4), pages 634-649, October.

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