Financial Constraints, the Distribution of Wealth and International Trade


  • We are grateful to a referee, to Tatyana Chesnokova and participants at the 2nd GEP conference in Ningbo, China 2009 and the Australasian Trade workshop in Canberra 2010. We also acknowledge financial support from the Leverhulme Trust under Programme Grant F/00/114/AM.


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.