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Financial Development and International Trade

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  • Fernando Leibovici

Abstract

This paper studies the industry-level and aggregate implications of financial development on international trade. I set up a multi-industry general equilibrium model of international trade with input-output linkages and heterogeneous firms subject to financial frictions. Industries differ in capital intensity, which leads to differences in external finance dependence. The model is parameterized to match key features of firm-level data. Financial development leads to substantial reallocation of international trade shares from labor- to capital-intensive industries, with minor effects at the aggregate level. These findings are consistent with estimates from cross-country industry-level and aggregate data.

Suggested Citation

  • Fernando Leibovici, 2021. "Financial Development and International Trade," Journal of Political Economy, University of Chicago Press, vol. 129(12), pages 3405-3446.
    • Handle: RePEc:ucp:jpolec:doi:10.1086/716564
    DOI: 10.1086/716564
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    JEL classification:

    • F1 - International Economics - - Trade
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development

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