Capital Constraints, Trade and Crowding Out of Southern Firms

Jonas Gade Christensen ()
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Jonas Gade Christensen: Universitetet i Bergen, Norway, Postal: Department of Economics, Fosswinckelsgt.14, 5007 Bergen, Norway, http://www.uib.no/econ

No 05/11, Working Papers in Economics from University of Bergen, Department of Economics

Abstract: Introducing capital market imperfections to a 'footloose capital'’model, I show how such distortions may explain the observed phenomena of an industrialized north and an underdeveloped south. Further, I show that with inter-generational savings internationalization will cause a crowding out of manufacturing firms in the south, increasing the share of the southern population that are credit-constrained, and also reducing total income in the country. This should not, however, be taken as an argument for protectionism, as welfare may indeed be higher with trade than in autarky, if trade costs are sufficiently low.

Keywords: Capital constraints; Home market effect; Gain from trade (search for similar items in EconPapers)
JEL-codes: F11 F12 F21 (search for similar items in EconPapers)
Pages: 57 pages
Date: 2011-02-02
New Economics Papers: this item is included in nep-int
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