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

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  • Manuel Oechslin
  • Reto Foellmi

Abstract

We explore the role of the ownership structure of capital in an economy that suffers from barriers to entry and an imperfect financial system. In such an environment, an unequal distribution of capital provides an explanation for trade flows and trade gains even when countries do not differ in relative factor endowments or available technologies. Moreover, an uneven asset distribution is associated with a large import-competing sector and only a small number of export-oriented entrepreneurs. Along these lines, we suggest that an unequal asset distribution may be key to understand why still many less developed countries protect their firms from foreign competition.

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Bibliographic Info

Paper provided by Institute for Empirical Research in Economics - University of Zurich in its series IEW - Working Papers with number 266.

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Date of creation: Jan 2006
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Handle: RePEc:zur:iewwpx:266

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Keywords: inequality; trade policy; economic development;

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Cited by:
  1. Caselli, Mauro, 2009. "Does wealth inequality reduce the gains from trade?," MPRA Paper 15329, University Library of Munich, Germany.
  2. Spiros Bougheas & Rod Falvey, . "The Impact of Financial Market Frictions on Trade Flows, Capital Flows and Economic Development," Discussion Papers 11/03, University of Nottingham, Centre for Finance, Credit and Macroeconomics (CFCM).
  3. Martin Grossmann & Helmut Dietl, 2012. "Asymmetric contests with liquidity constraints," Public Choice, Springer, vol. 150(3), pages 691-713, March.
  4. Foellmi, Reto & Oechslin, Manuel, 2012. "Globalization and Productivity in the Developing World," Economics Working Paper Series 1203, University of St. Gallen, School of Economics and Political Science.

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