Financial Constraints, the Distribution of Wealth and International Trade

Abstract

We develop a simple theoretical model to examine the impact of the distribution of wealth on the patterns of trade when capital markets are imperfect. Our model predicts that the dispersion of wealth can be a determinant of comparative advantage for low-income countries with poor financial institutions. We find support for these prediction using export and financial panel data from a large sample of countries.

Keywords: Patterns of Trade, Wealth Distribution, Financial Constraints

JEL Classification: F10