Trade in intermediates (or ‘unbundling of production') and trade in capital have become increasingly important in last 25 years. This column shows that trade in intermediates generates a reallocation of capital across countries that exacerbates world inequality in both income and welfare. Unbundling of production hurts middle-income countries but helps those with high productivity. Trade in intermediates also increases within-country inequality, and this increase is U-shaped in the aggregate productivity level of the country.
Alberto Giovannini, 22 November 2008
Simplicity and transparency, two major causalities of recent financial market changes, are essential to restoring trust in financial markets. This column suggests that distinguishing two types of financial intermediaries – client servicers and capital managers – would be a big step in the right direction. Today’s lack of distinction means one set of regulations is applied to the two very different functions.
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