Immiserizing deindustrialization: A dynamic trade model with credit constraints

Tatyana Chesnokova

Research output: Contribution to journalArticle

8 Citations (Scopus)

Abstract

The paper develops an open economy dynamic model with bequests and credit constraints. The agricultural sector uses only labor, the industrial sector needs an indivisible investment. Under autarky, productive agriculture provides the funds needed for investment in industry and in equilibrium credit constraints are not binding. If agriculture is not sufficiently productive, the price of the industrial good must be high enough to make the industrial sector sustainable. In an open economy, if the country has the comparative advantage in agriculture, deindustrialization may occur over time. Deindustrialization is welfare-reducing when the negative wealth distributional effects swamp the gains from trade.

Original languageEnglish
Pages (from-to)407-420
Number of pages14
JournalJournal of International Economics
Volume73
Issue number2
DOIs
Publication statusPublished - 2007 Nov
Externally publishedYes

Keywords

  • Comparative advantage
  • Credit constraints
  • Deindustrialization
  • Endogenous wealth distribution
  • Immiserizing trade

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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