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- Title
Inequality and the structure of countries' external liabilities.
- Authors
Harms, Philipp; Hoffmann, Mathias; Kohl, Miriam; Krahnke, Tobias
- Abstract
In this paper, we present empirical evidence that higher income inequality is associated with a greater equity share in countries' external liabilities, and we develop a theoretical model that can explain this observation: In a small open economy with traded and non-traded goods, entry barriers depress entrepreneurial activity in non-traded industries and raise income inequality. The small number of domestic non-traded goods firms leaves room for foreign firms to operate on the domestic market, and it reduces external borrowing. The model thus suggests that barriers to entrepreneurial activity raise both inequality and the equity share in foreign liabilities. Our empirical results lend some support to this conjecture.
- Subjects
INCOME inequality; FOREIGN investments; FREE trade; DOMESTIC markets; EXTERNAL debts
- Publication
Review of World Economics, 2024, Vol 160, Issue 2, p585
- ISSN
1610-2878
- Publication type
Article
- DOI
10.1007/s10290-023-00499-0