In this paper we develop a general equilibrium model where credit constraints limit the ability of agents with heterogeneous abilities and wealth to acquire skills. We identify a new effect, the induced Rybczynski effect, that works in the opposite direction from the normal supply response and may result in relative supply being downward-sloping. We analyze the effects of trade and show that under some conditions trade may reduce welfare. Finally, we study the effects of trade on income distribution and inequality.
|Original language||English (US)|
|Number of pages||12|
|Journal||International Review of Economics and Finance|
|State||Published - Mar 2009|
All Science Journal Classification (ASJC) codes
- Economics and Econometrics