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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. Taiji Furusawa & Noriyuki Yanagawa, 2010. "Firm Heterogeneity under Financial Imperfection: Impacts of Trade and Capital Movement," CARF F-Series CARF-F-233, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
  2. Mauro Caselli, 2008. "Does wealth inequality reduce the gains from trade?," CSAE Working Paper Series 2008-30, Centre for the Study of African Economies, University of Oxford.
  3. Carré, Martine & Riboni, Alessandro, 2012. "Unequal societies, Unequal Terms of Trade and Trade Policy," Economics Papers from University Paris Dauphine 123456789/10331, Paris Dauphine University.
  4. Spiros Bougheas & Rod Falvey, 2011. "The Impact of Financial Market Frictions on Trade Flows, Capital Flows and Economic Development," CESifo Working Paper Series 3321, CESifo Group Munich.
  5. 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.
  6. Martin Grossmann & Helmut Dietl, 2012. "Asymmetric contests with liquidity constraints," Public Choice, Springer, vol. 150(3), pages 691-713, March.

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