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On the Role of Financial Frictions and the Saving Rate during Trade Liberalizations

  • Caballero, Richard J.
  • Antras, Pol

We study how financial frictions and the saving rate shape the long-run effects of trade liberalization on income, consumption and the distribution of wealth in financially underdeveloped economies. In our model, regardless of whether the capital account is open or not, trade liberalization reduces the share of wealth in the hands of entrepreneurs and may well reduce steady state consumption and income. Furthermore, trade opening is more likely to reduce steady-state consumption and output, the higher is the level of financial development. For economies with an open capital account, a higher saving rate also increases the likelihood that a trade liberalization leads to a reduction in steady-state consumption and output.

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File URL: http://dash.harvard.edu/bitstream/handle/1/4784027/Antras_FinancialFrictions.pdf
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Paper provided by Harvard University Department of Economics in its series Scholarly Articles with number 4784027.

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Date of creation: 2010
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Publication status: Published in Journal of the European Economic Association
Handle: RePEc:hrv:faseco:4784027
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  1. Chesnokova, Tatyana, 2007. "Immiserizing deindustrialization: A dynamic trade model with credit constraints," Journal of International Economics, Elsevier, vol. 73(2), pages 407-420, November.
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