Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/76754
Authors: 
Foellmi, Reto
Oechslin, Manuel
Year of Publication: 
2010
Series/Report no.: 
Discussion Papers, Department of Economics, Universität Bern 10-06
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.
Subjects: 
wealth inequality
trade liberalization
credit market frictions
top incomes
JEL: 
O11
F13
O16
Document Type: 
Working Paper

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