CAFRAL-SRU Brown Bag Seminar - Gains From Trade With Heterogeneous Agents Under Financial Constraints
Speaker(s) Dr. Gautham Udupa, Research Director, CAFRAL Publication CAFRAL Conference room on Mezzanine Floor, Main Building. Reserve Bank of India, Fort, Mumbai 400 001

We aim to quantify gains from trade in a general equilibrium setting with heterogeneous households with both trade frictions for firms and financial frictions for households. Households face idiosyncratic earning shocks but are constrained in their ability to save by savings fixed cost and minimum savings requirements. This is combined with a standard trade model with intermediate production using capital and labor, and an Armington aggregated final good. Iceberg cost makes trade in intermediates costly. We find that financial frictions have qualitatively different impact on inequality compared to the iceberg trade cost- barriers to savings increase inequality while trade cost does not impact inequality in a setting with a single worker type.