Trade effects on the personal distribution of wealth

Abstract

This paper develops a dynamic Heckscher-Ohlin model and studies the interaction between international trade and the dynamics of the wealth distribution in a small open economy. I prove that trade generates a permanent decline in inequality (relative to the level under autarky) if the economy opens to trade with a stock of capital sufficiently close to its steady state level. I then use numerical simulations to study wealth distribution dynamics when the economy opens to trade while far away from the steady state. My results suggest that trade always helps to reduce inequality in wealth.