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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. |
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