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The Impact of Financial Constraints and Wealth Inequality on International Trade Flows, Capital Movements and Entrepreneurial Migration

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  • Spiros Bougheas
  • Rod Falvey

Abstract

We introduce financial frictions into a simple two sector model of international trade with heterogeneous agents and investigate the impact of differences in the strength of financial institutions and wealth inequality on trade flows, capital movements and entrepreneurial migration. Distinct cost-cutting and career-changing motives for entrepreneurial migration exist, which can lead to two-way entrepreneurial flows. We establish presumptions that countries with stronger financial systems or greater wealth inequality will export the output of the financially dependent sector, will import capital and will be a (net) exporter of entrepreneurs. Important exceptions are shown.

Suggested Citation

  • Spiros Bougheas & Rod Falvey, 2014. "The Impact of Financial Constraints and Wealth Inequality on International Trade Flows, Capital Movements and Entrepreneurial Migration," CESifo Working Paper Series 4775, CESifo.
    • Handle: RePEc:ces:ceswps:_4775
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    References listed on IDEAS

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    1. Saint-Paul, Gilles, 1992. "Technological choice, financial markets and economic development," European Economic Review, Elsevier, vol. 36(4), pages 763-781, May.
    2. Emmanuel Amissah & Spiros Bougheas & Rod Falvey, 2011. "Financial Constraints, the Distribution of Wealth and International Trade," The World Economy, Wiley Blackwell, vol. 34, pages 707-724, May.
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    6. Taiji Furusawa & Taiji Furusawa, Noriyuki Yanagawa, 2013. "International Trade and Capital Movement under Financial Imperfection," CARF F-Series CARF-F-316, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
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    More about this item

    Keywords

    entrepreneurial migration; trade flows; capital flows; wealth inequality; financial frictions;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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