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Credit constraints, inequality and the growth gains from trade


  • Caselli, Mauro


This paper tests the hypothesis that, in the presence of credit constraints, higher wealth inequality affects negatively the growth gains from trade liberalisation. Variations in the growth rate of value added–decomposed in the growth rate of the number of establishments and the growth rate in average size–of manufacturing industries in 34 developing countries before and after trade liberalisation are used to study the effects of inequality on the difference in growth under liberalised and nonliberalised regimes. The results show that the number of firms in industries with high dependence on external finance in countries with higher inequality grow significantly slower, in both statistical and economic terms, than in industries with low dependence on external finance in countries with lower inequality following a trade liberalisation relative to the closed-economy period.

Suggested Citation

  • Caselli, Mauro, 2013. "Credit constraints, inequality and the growth gains from trade," Economics Letters, Elsevier, vol. 121(1), pages 43-47.
  • Handle: RePEc:eee:ecolet:v:121:y:2013:i:1:p:43-47 DOI: 10.1016/j.econlet.2013.06.038

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    References listed on IDEAS

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    16. repec:dgr:rugggd:gd-81 is not listed on IDEAS
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    Cited by:

    1. Foellmi, Reto & Legge, Stefan & Tiemann, Alexa, 2015. "Innovation and Trade in the Presence of Credit Constraints," CEPR Discussion Papers 10391, C.E.P.R. Discussion Papers.
    2. Roxana Gutiérrez-Romero, 2017. "How does inequality affect long-run growth?," Working Papers 84, Queen Mary, University of London, School of Business and Management, Centre for Globalisation Research.

    More about this item


    Growth; Inequality; Trade liberalisation; Credit constraints; Developing countries;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • L60 - Industrial Organization - - Industry Studies: Manufacturing - - - General
    • O40 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - General


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