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Financial Development, Fixed Costs, and International Trade

Author

Listed:
  • Bo Becker
  • Jinzhu Chen
  • David Greenberg

Abstract

Exports require significant up-front costs in product design, marketing, and distribution. These are intangible, firm-specific investments that are likely difficult to finance externally. We argue that a developed financial system can therefore facilitate exports. We test this prediction and find support for it. First, financial development is associated with more exports in industries in which fixed costs are high as well as to importers that require high costs. Second, trade dynamics are affected by financial development. In countries with better finance, exports are more sensitive to exchange rates. Finally, we predict and document that countries with more developed finance experience more volatile exports.

Suggested Citation

  • Bo Becker & Jinzhu Chen & David Greenberg, 2013. "Financial Development, Fixed Costs, and International Trade," The Review of Corporate Finance Studies, Society for Financial Studies, vol. 2(1), pages 1-28.
    • Handle: RePEc:oup:rcorpf:v:2:y:2013:i:1:p:1-28.
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    File URL: http://hdl.handle.net/10.1093/rcfs/cfs005
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    More about this item

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General

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