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The role of finance in production and international trade

Author

Listed:
  • Marjit, Sugata
  • Das, Gouranga G.
  • Yang, Lei

Abstract

We introduce finance in a neo-classical general equilibrium model of production and international trade to integrate the core microeconomic theory with the theory of finance. The stock of credit, as past savings, finances employment and the acquisition of machines or capital goods. The availability of finance or international financial flows does not affect production or trade patterns, except for nominal factor prices, in undistorted competitive structures. However, distortions such as unemployment, imperfect credit markets, and factor mobility do affect real outcomes and trade. Our results are consistent with contemporary empirical evidence and have policy implications for financial development and institutional quality. Numerical illustrations provide further insights.

Suggested Citation

  • Marjit, Sugata & Das, Gouranga G. & Yang, Lei, 2025. "The role of finance in production and international trade," The North American Journal of Economics and Finance, Elsevier, vol. 75(PA).
    • Handle: RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824001980
    DOI: 10.1016/j.najef.2024.102273
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    More about this item

    Keywords

    Credit; General Equilibrium; Trade Pattern; Imperfect Credit Market; Financial Development; Unemployment;
    All these keywords.

    JEL classification:

    • B12 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Classical (includes Adam Smith)
    • B13 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - Neoclassical through 1925 (Austrian, Marshallian, Walrasian, Wicksellian)
    • B17 - Schools of Economic Thought and Methodology - - History of Economic Thought through 1925 - - - International Trade and Finance
    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F63 - International Economics - - Economic Impacts of Globalization - - - Economic Development
    • F65 - International Economics - - Economic Impacts of Globalization - - - Finance
    • F16 - International Economics - - Trade - - - Trade and Labor Market Interactions
    • O12 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Microeconomic Analyses of Economic Development

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