Market imperfections, wealth inequality, and the distribution of trade gains.

R. Foellmi, M. Oechslin

Research output: Contribution to journalArticleScientificpeer-review

Abstract

Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.
Original languageEnglish
Pages (from-to)15-25
JournalJournal of International Economics
Volume81
Issue number1
DOIs
Publication statusPublished - 2010

Fingerprint

Market imperfections
Wealth inequality
Less developed countries
Entrepreneurs
Imperfections
Top incomes
Regularity
Trade liberalization
Free trade
Income differences
Access to credit
Profit margin
Financial system
Integrated
Owners
Credit frictions
Globalization

Cite this

@article{0cb47500a0f348e284d8e18c36a41174,
title = "Market imperfections, wealth inequality, and the distribution of trade gains.",
abstract = "Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.",
author = "R. Foellmi and M. Oechslin",
year = "2010",
doi = "10.1016/j.jinteco.2010.03.001",
language = "English",
volume = "81",
pages = "15--25",
journal = "Journal of International Economics",
issn = "0022-1996",
publisher = "Elsevier",
number = "1",

}

Market imperfections, wealth inequality, and the distribution of trade gains. / Foellmi, R.; Oechslin, M.

In: Journal of International Economics, Vol. 81, No. 1, 2010, p. 15-25.

Research output: Contribution to journalArticleScientificpeer-review

TY - JOUR

T1 - Market imperfections, wealth inequality, and the distribution of trade gains.

AU - Foellmi, R.

AU - Oechslin, M.

PY - 2010

Y1 - 2010

N2 - Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.

AB - Globalization increasingly involves less-developed countries (LDCs), i.e., economies which usually suffer from severe imperfections in their financial systems. Taking these imperfections seriously, we analyze how credit frictions affect the distributive impact of trade liberalizations. We find that free trade significantly widens income differences among firm owners in LDCs: While wealthy entrepreneurs are better off, relatively poor business people lose. Intuitively, with integrated markets, profit margins shrink — which makes access to credit particularly difficult for the least-affluent agents. Richer entrepreneurs, by contrast, win because they can take advantage of new export opportunities. Our findings resonate well with a number of empirical regularities, in particular with the observation that some liberalizing LDCs have observed a surge in top-income shares.

U2 - 10.1016/j.jinteco.2010.03.001

DO - 10.1016/j.jinteco.2010.03.001

M3 - Article

VL - 81

SP - 15

EP - 25

JO - Journal of International Economics

JF - Journal of International Economics

SN - 0022-1996

IS - 1

ER -