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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.

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File URL: http://www.sciencedirect.com/science/article/pii/S0165176513003200
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Article provided by Elsevier in its journal Economics Letters.

Volume (Year): 121 (2013)
Issue (Month): 1 ()
Pages: 43-47

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Handle: RePEc:eee:ecolet:v:121:y:2013:i:1:p:43-47
Contact details of provider: Web page: http://www.elsevier.com/locate/ecolet

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  9. E.H.P. Frankema, 2005. "The Colonial Origins of Inequality: Exploring the Causes and Consequences of Land Distribution," Ibero America Institute for Econ. Research (IAI) Discussion Papers 119, Ibero-America Institute for Economic Research.
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  13. Braun, Matias & Raddatz, Claudio, 2007. "Trade liberalization, capital account liberalization and the real effects of financial development," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 730-761, September.
  14. Jeffrey D. Sachs & Andrew Warner, 1995. "Economic Reform and the Process of Global Integration," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 26(1, 25th A), pages 1-118.
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