Trade Effects on the Personal Distribution of Wealth

Abstract

This paper develops a dynamic Heckscher-Ohlin model and studies the interaction between international trade and wealth distribution dynamics. I also study how differences in the cost of financial intermediation among countries may affect the pattern of trade and wealth dynamics. Relative to the inequality it would have prevailed under autarky, I find that trade promotes a decline (an increase) in inequality when the economy converges to the steady state form below (above). However, with trade inequality increases (declines) during the transition from below (above). I also find that trade may alleviate frictions in the financial intermediation sector in economies where these frictions are larger. In those economies, trade may in fact promote a higher income than under autarky.International Trade, Wealth Distribution, Financial Intermediation