Reto Foellmi - Manuel Oechslin
Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains

Abstract:We explore the role of the ownership structure of capital in an economy that suffers from barriers to entry and an imperfect financial system. In such an environment, an unequal distribution of capital provides an explanation for trade flows and trade gains even when countries do not differ in relative factor endowments or available technologies. Moreover, an uneven asset distribution is associated with a large import-competing sector and only a small number of export-oriented entrepreneurs. Along these lines, we suggest that an unequal asset distribution may be key to understand why still many less developed countries protect their firms from foreign competition.

JEL: O11, F13, O16.
Keywords: inequality, trade policy, economic development.



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