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Endogenous factor market distortion, risk aversion, and international trade under input uncertainty

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  • Hamid Beladi
  • Nancy H. Chau

Abstract

In the context of non-diversifiable and sector-specific risks in labour markets, we show that the resulting factor market distortion - attributable to an endogenous intersectoral wage differential - can provide a possible rationale that explains why larger wage dispersion prevails in developing nations. We also demonstrate how endogenous wage distortions spill over to capital markets, with capital-poor economies offering lower rates of returns. In addition, we show that inequality in the distribution of wealth further deviates factor allocation away from first-best and impairs intersectoral mobility of the poor.

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  • Hamid Beladi & Nancy H. Chau, 2000. "Endogenous factor market distortion, risk aversion, and international trade under input uncertainty," Canadian Journal of Economics, Canadian Economics Association, vol. 33(2), pages 523-539, May.
    • Handle: RePEc:cje:issued:v:33:y:2000:i:2:p:523-539
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    Cited by:

    1. Hansen, Bodil O. & Keiding, Hans, 2005. "On The Advantages of Piecemeal Integration," Working Papers 04-2005, Copenhagen Business School, Department of Economics.

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