Specializations, financial constraints, and income distribution
Takuma Kunieda (),
Kazuo Nishimura () and
Akihisa Shibata ()
International Review of Economics & Finance, 2018, vol. 56, issue C, 3-14
We investigate how financial frictions affect across- and within-country income distributions by using a three-country dynamic general equilibrium model. In our model, the first and second countries specialize in producing (country-specific) intermediate goods and face financial constraints. The third country produces the final goods by using its own labor and intermediate goods purchased from the first and second countries. The financial markets of these countries are perfectly separated from each other, and the interest rates differ across countries. Our finding is that if the elasticity of substitution between the two intermediate goods is sufficiently high, the relaxation of financial constraints in the first (second) country decreases the second (first) country's income, whereas if the elasticity of substitution is sufficiently low, the relaxation of financial constraints in the first (second) country increases the second (first) country's income. We also find that the income inequality across the three countries is widened by the further relaxation of financial constraints in the country with higher financial development, regardless of the ranking of the per capita income between the first and second countries. Furthermore, the income inequality within the first or second country is reduced as the financial constraints in that country are relaxed.
Keywords: Specializations; Financial market imperfections; Across-country income distribution; Within-country income distribution (search for similar items in EconPapers)
JEL-codes: F41 F62 O16 O41 (search for similar items in EconPapers)
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed
Downloads: (external link)
Full text for ScienceDirect subscribers only
This item may be available elsewhere in EconPapers: Search for items with the same title.
Export reference: BibTeX
RIS (EndNote, ProCite, RefMan)
Persistent link: https://EconPapers.repec.org/RePEc:eee:reveco:v:56:y:2018:i:c:p:3-14
Access Statistics for this article
International Review of Economics & Finance is currently edited by H. Beladi and C. Chen
More articles in International Review of Economics & Finance from Elsevier
Bibliographic data for series maintained by Dana Niculescu ().