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How Local Financial Market Conditions, Interest Rates, and Productivity Relate to Decisions to Export

Author

Listed:
  • Dingming Liu

    (Wang Yanan Institute for Studies in Economics, Xiamen University)

  • Pu Chen

    (School of Economics, Renmin University of China)

  • Chunyang Wang

    (HSBC Business School, Peking University)

Abstract

Theoretic and empirical studies argue that the differences in financial mar- ket development contribute to varying export levels in international trade. We illustrate this idea by studying a heterogeneous firm model expanded to in- clude a borrowing constraint, and we find that in a developed financial system a change in interest rate exerts a significant effect on exports, due to the high dependence on external financing. Conversely, in less developed financial sys- tems, where producers typically have to rely on internally generated capital, changes in the interest rate do not generate a significant effect on export levels.

Suggested Citation

  • Dingming Liu & Pu Chen & Chunyang Wang, 2015. "How Local Financial Market Conditions, Interest Rates, and Productivity Relate to Decisions to Export," Annals of Economics and Finance, Society for AEF, vol. 16(2), pages 315-334, November.
    • Handle: RePEc:cuf:journl:y:2015:v:16:i:2:liu
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    References listed on IDEAS

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    Keywords

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    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G3 - Financial Economics - - Corporate Finance and Governance

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