Economics, Econometrics and Finance
4 years ago

Trade opening can increase inequality by empowering elite exporters.

Journal of Economic Theory
Trade, inequality, and the political economy of institutions
Quy-Toan Do, Andrei A. Levchenko

Paper Summary

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The article explores how international trade affects the quality of economic institutions. It suggests that when trade opens up, it can lead to higher entry costs for businesses, especially for smaller ones, due to changes in political power favoring large exporters. This means that larger firms may set higher entry costs to reduce competition, impacting how easy it is for new businesses to enter the market.