Arbeitspapier
Credit frictions, selection into external finance, and gains from trade
This paper analyzes the effects of credit frictions in a trade model where heterogeneous firms select both into exporting and into two types of external finance. In our framework, small producers face stronger credit frictions, pay a higher borrowing rate and rely on bank finance, whereas large firms have access to cheaper bond finance. We show that an increase in credit frictions induces firms to select into bank finance, which attenuates the negative implications on product variety and welfare. In the open economy, the presence of effective financial intermediation increases the welfare gains from trade. In a counterfactual analysis, we exploit that our framework nests a model with credit frictions and one type of finance as a special case, and we show that endogenous selection into external finance is an important channel of adjustment.
- Language
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Englisch
- Bibliographic citation
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Series: CESifo Working Paper ; No. 7641
- Classification
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Wirtschaft
Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill
Production, Pricing, and Market Structure; Size Distribution of Firms
- Subject
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international trade
external finance
credit constraints
heterogeneous firms
moral hazard
bank and bond finance
- Event
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Geistige Schöpfung
- (who)
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Unger, Florian
- Event
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Veröffentlichung
- (who)
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Center for Economic Studies and ifo Institute (CESifo)
- (where)
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Munich
- (when)
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2019
- Handle
- Last update
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10.03.2025, 11:44 AM CET
Data provider
ZBW - Deutsche Zentralbibliothek für Wirtschaftswissenschaften - Leibniz-Informationszentrum Wirtschaft. If you have any questions about the object, please contact the data provider.
Object type
- Arbeitspapier
Associated
- Unger, Florian
- Center for Economic Studies and ifo Institute (CESifo)
Time of origin
- 2019