Capital Market Imperfections and Trade Liberalization in General Equilibrium

Irlacher, Michael und Unger, Florian (18. Mai 2015): Capital Market Imperfections and Trade Liberalization in General Equilibrium. Münchener Wirtschaftswissenschaftliche Beiträge (VWL) 2015-6

Abstract

This paper develops a new international trade model with capital market imperfections and endogenous borrowing costs in general equilibrium. Our theoretical model is motivated by new empirical patterns from enterprise survey data of the World Bank. Observing that a substantial fraction of the variation in financial constraints is across firms within industries, we allow for firm-specific exposure to financial constraints. This leads to credit rationing and divides producers into financially constrained and unconstrained ones. We show that endogenous adjustments of capital costs represent a new channel that reduces common gains from globalization. Trade liberalization increases the demand for capital and thus the borrowing rate. This leads to a reallocation of market shares towards financially unconstrained producers and a larger fraction of credit-rationed firms. Both effects increase the within-industry variance of firm outcomes and reduce welfare gains as consumers dislike heterogeneity in prices.

• Dokumententyp: Paper
• Keywords: Credit constraints; General equilibrium; Globalization; Imperfect capital markets; Welfare
• Fakultät: Volkswirtschaft > Munich Discussion Papers in Economics ; Volkswirtschaft > Lehrstühle > Seminar für Wirtschaftstheorie ; Volkswirtschaft > Lehrstühle > Seminar für Außenwirtschaftstheorie
• Themengebiete: 300 Sozialwissenschaften > 330 Wirtschaft
• JEL Classification: F10, F36, F61, L11
• Sprache: Englisch

Literaturliste

Antràs, Pol, & Caballero, Ricardo J. 2009. Trade and Capital Flows: A Financial Frictions Perspective. Journal of Political Economy, 117(4), 701-744.

Antràs, Pol, Desai, Mihir A., & Foley, C. Fritz. 2009. Multinational Firms, FDI Flows, and Imperfect Capital Markets. The Quarterly Journal of Economics, 124(3), 1171-1219.

Banerjee, Abhijit V., & Duflo, Esther. 2005. Chapter 7 Growth Theory through the Lens of Development Economics. Handbook of Economic Growth, vol. 1, Part A. Elsevier.

Banerjee, Abhijit V., & Duflo, Esther. 2014. Do Firms Want to Borrow More? Testing Credit Constraints Using a Directed Lending Program. The Review of Economic Studies,81(2), 572-607.

Beck, Thorsten. 2003. Financial Dependence and International Trade. Review of Internan tional Economics, 11(2), 296-316.

Berman, Nicolas, & H'ericourt, J'er'ome. 2010. Financial factors and the margins of trade: Evidence from cross-country firm-level data. Journal of Development Economics, 93(2),206-217.

Chaney, Thomas. 2013 (June). Liquidity Constrained Eeporters. NBER Working Papers 19170. National Bureau of Economic Research.

Eckel, Carsten, & Neary, J. Peter. 2010. Multi-Product Firms and Flexible Manufacturing in the Global Economy. Review of Economic tudies, 77(1), 188-217.

Egger, Peter, & Keuschnigg, Christian. 2015. Innovation, Trade, and Finance. merican Economic Journal: Microeconomics, 7(2), 121-57.

Ehrlich, Maximilian Von, & Seidel, Tobias. 2013. Regional Implications of Financial Marret Development: Credit Rationing, Trade, and Location. CESifo Working Paper Series 4063. CESifo Group Munich.

Foellmi, Reto, & Oechslin, Manuel. 2010. Market imperfections, wealth inequality, and the distribution of trade gains. Journal of International Economics, 81(1), 15-25.

Formai, Sara. 2013 (Nov.). Heterogenous firms and credit frictions: a general equilibrium analysis of marret entry decisions. Temi di discussione (Economic working papers) 940. Bank of Italy, Economic Research and International Relations Area.

Goerg, Holger, & Spaliara, Marina-Eliza. 2013 (Aug.). Eeport marret eeit, financial pressure and the crisis. CEPR Discussion Papers 9599.

Gorodnichenko, Yuriy, & Schnitzer, Monika. 2013. Financial constraints and innovation: why poor countries don't catch up. Journal of the European Economic Association, 11(5),1115-1152.

Greenaway, David, Guariglia, Alessandra, & Kneller, Richard. 2007. Financial factors and exporting decisions. Journal of International Economics, 73(2), 377-395.

Holmstrom, Bengt, & Tirole, Jean. 1997. Financial Intermediation, Loanable Funds, and the Real Sector. The Quarterly Journal of Economics, 112(3), 663-91.

Manova, Kalina. 2008. Credit constraints, equity market liberalizations and international trade. Journal of International Economics, 7 (1), 33-47.

Manova, Kalina. 2013. Credit Constraints, Heterogeneous Firms, and International Trade. Review of Economic Studies, 80(2), 711-744.

Melitz, Marc J. 2003. The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity. Econometrica, 71(6), 1695-1725.

Melitz, Marc J., & Ottaviano, Gianmarco I. P. 2008. Market Size, Trade, and Productivity. Review of Economic tudies, 7 (1), 295-316.

Minetti, Raoul, & Zhu, Susan Chun. 2011. Credit constraints and firm export: Microeconomic evidence from Italy. Journal of International Economics, 83(2), 109-125.

Muu'ls, Mirabelle. 2008 (September). Eeporters and credit constraints. firm level approach. NBB Working Paper 139. National Bank of Belgium.

Muu'ls, Mirabelle. 2015. Exporters, importers and credit constraints. Journal of International Economics, 9 (2), 333 - 343.

Neary, J. Peter. 2003. Presidential Address: Globalization and Market Structure. Journal of the European Economic Association, 1(2-3), 245-271.

Peters, Katrin, & Schnitzer, Monika. 2015. Trade liberalization and credit constraints: Why opening up may fail to promote convergence. forthcoming in: Canadian Journal of Econ nomics, 48(3).

Svaleryd, Helena, & Vlachos, Jonas. 2005. Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries. European Economic Review, 49(1), 113-144.

Tirole, Jean. 2006. The Theory of Corporate Finance. Princeton: Princeton University Press.

Wagner, Joachim. 2014. Credit constraints and exports: a survey of empirical studies using firm-level data. Industrial and Corporate Change, 23(6), 1477-1492.