Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/235422 
Year of Publication: 
2021
Series/Report no.: 
CESifo Working Paper No. 9052
Publisher: 
Center for Economic Studies and Ifo Institute (CESifo), Munich
Abstract: 
This paper explores the implications on trade and wage inequality of introducing financial capital or credit in the standard Ricardian model of production, where a given amount of start-up credit is used to employ sector specific skilled and unskilled workers following the Wage Fund approach of classical economists. Thus, we have the Specific Factor (SF) structure of Jones (1971) in a new Ricardian model (NRM) with credit and two types of labour. With an entirely different mechanism from the conventional Neo-Classical structure, distributional consequences of changes in endowments, commodity prices, and financial capital are established. Comparisons with Jones (1971) show that unlike SF model, credit expansion affects wages and nominal costs without affecting trade patterns, while rise in the relative price of the skill-intensive good causes skilled wage to hike less than proportionately, and may cause return to capital to inflate more than the wages We extend the basic model to analyse immigration, unemployment and imperfect credit market.
Subjects: 
wage-fund
specific factor
Ricardo
inequality
credit
general equilibrium
JEL: 
B12
B13
B17
F11
F63
F65
F16
O12
Document Type: 
Working Paper
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