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Credit Constraints, Heterogeneous Firms, and International Trade

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Author Info
Kalina Manova
Abstract

Three fundamental features of international trade flows are a predominance of zeros in the bilateral trade matrix, great variation in the number of products countries export, and substantial turnover in the product mix of exports over time. This paper provides evidence that credit constraints are an important determinant of all three patterns. I develop a model with credit-constrained heterogeneous firms, countries at different levels of financial development, and sectors of varying financial vulnerability, and find strong empirical support for the model's predictions. First, I show that financially developed countries are more likely to export bilaterally and ship greater volumes when they become exporters. This effect is more pronounced in sectors with a greater requirement for outside finance or fewer collateralizable assets. Firm selection into exporting accounts for a third of the effect of credit constraints on export volumes, whereas two thirds are due to the impact on firm-level exports. Second, in financially vulnerable sectors, financially developed countries export a wider variety of products and experience less product turnover in their exports over time. Finally, credit constraints lead to a pecking order of trade. While all countries export to large destinations, financially advanced countries have more trading partners and also export to smaller import markets, especially in financially vulnerable sectors.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 14531.

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Date of creation: Dec 2008
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Handle: RePEc:nbr:nberwo:14531

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Find related papers by JEL classification:
F10 - International Economics - - Trade - - - General
F14 - International Economics - - Trade - - - Country and Industry Studies of Trade
F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
G20 - Financial Economics - - Financial Institutions and Services - - - General
G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Capital and Ownership Structure

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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  1. Iacovone, Leonardo & Zavacka, Veronika, 2009. "Banking crises and exports : lessons from the past," Policy Research Working Paper Series 5016, The World Bank. [Downloadable!]
  2. Francisco J. Buera & Joseph Kaboski & Yongseok Shin, 2009. "Finance and Development: A Tale of Two Sectors," NBER Working Papers 14914, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  3. Noriyuki Yanagawa, 2008. "Financial Imperfection and Outsourcing Decision," CIRJE F-Series CIRJE-F-586, CIRJE, Faculty of Economics, University of Tokyo. [Downloadable!]
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