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Business Conditions and Default Risks Across Countries

Author

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  • Michael Pflüger
  • Stephan Russek

Abstract

The risk of default that business firms face is very significant and differs widely across countries. This paper explores the links between countries’ business conditions and international trade embedment and the default risk at the country level from a theoretical point of view. Our main contribution is to set up a general equilibrium model which allows us to derive sharp predictions concerning how key factors which shape a country’s business and trade environment impact on the default risk of firms which operate in these environments. The predictions are in accord with readily available data.

Suggested Citation

  • Michael Pflüger & Stephan Russek, 2011. "Business Conditions and Default Risks Across Countries," Working Papers 098, Bavarian Graduate Program in Economics (BGPE).
  • Handle: RePEc:bav:wpaper:098_pfluegerrussek
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    File URL: http://www.bgpe.de/texte/DP/098_PfluegerRussek.pdf
    File Function: First version, 2011
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    More about this item

    Keywords

    firm death; firm heterogeneity; business conditions and firm productivity; trade integration;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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