Does wealth inequality reduce the gains from trade?

Does wealth inequality reduce the gains from trade?

Panel data on 54 developing countries between 1960 and 2000 are used to investigate how the impact of opening to trade on economic growth is affected by wealth inequality. The results suggest (a) that opening to trade tends to accelerate growth but (b) that the addition to growth depends inversely on the level of wealth inequality prior to opening. These findings confirm the general importance ...

Market Imperfections, Wealth Inequality, and the Distribution of Trade Gains

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 associ...

Does Wealth Inequality Help Informal Insurance?

This paper investigates the effects of inequality in the presence of voluntary risk-sharing. In any period, an agent’s resources are composed of his share of a secure endowment (wealth, land) and a random component (labor income). To be sure, the distribution of wealth does not affect the Pareto optimal payoff vectors but, by changing the autarchic utilities, affects the set of these payoff vec...

The Redistribution of Trade Gains When Income Inequality Matters

How does a redistribution of trade gains affect welfare when income inequality matters? To answer this question, we extend the [1] model to unionized labor markets and heterogeneous workers. As redistribution schemes, we consider unemployment benefits that are financed either by a wage tax, a payroll tax or a profit tax. Assuming that welfare declines in income inequality, we find that welfare ...

Measurable Dynamic Gains from Trade