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Firm Heterogeneity under Financial Imperfection: Impacts of Trade and Capital Movement

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  • Taiji Furusawa

    (Harvard University, Hitotsubashi University)

  • Noriyuki Yanagawa

    (Faculty of Economics, University of Tokyo)

Abstract

The paper examines the impacts of trade and capital movement between North and South, which differ in the quality of financial institution, on the productivity distri- bution and other characteristics of a financially-dependent industry. We find that financial imperfection causes firm heterogeneity and that trade and capital movement are complements in the sense that trade in goods affects the productivity distribu- tion only when accompanied by international capital movement (trade induces capital outflow from South when capital has been internationally mobile). We also find that an international difference in financial development induces reciprocal foreign direct investment.

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Bibliographic Info

Paper provided by Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo in its series CARF F-Series with number CARF-F-233.

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Length: 42 pages
Date of creation: Oct 2010
Date of revision:
Handle: RePEc:cfi:fseres:cf233

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  1. Ju, Jiandong & Wei, Shang-Jin, 2011. "When is quality of financial system a source of comparative advantage?," Journal of International Economics, Elsevier, vol. 84(2), pages 178-187, July.
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  9. Kumar, Krishna B & Rajan, Raghuram G & Zingales, Luigi, 1999. "What Determines Firm Size?," CEPR Discussion Papers 2211, C.E.P.R. Discussion Papers.
  10. Josh Ederington & Phillip McCalman, 2009. "International Trade And Industrial Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 50(3), pages 961-989, 08.
  11. Yeaple, Stephen Ross, 2005. "A simple model of firm heterogeneity, international trade, and wages," Journal of International Economics, Elsevier, vol. 65(1), pages 1-20, January.
  12. Ederington, Josh & McCalman, Phillip, 2008. "Endogenous firm heterogeneity and the dynamics of trade liberalization," Journal of International Economics, Elsevier, vol. 74(2), pages 422-440, March.
  13. Michael W. Klein, 2005. "Capital Account Liberalization, Institutional Quality and Economic Growth: Theory and Evidence," NBER Working Papers 11112, National Bureau of Economic Research, Inc.
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