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Credit Market Quality, Innovation and Trade

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  • Cristina Terra
  • Enrico Vasconcelos

Abstract

Using a general equilibrium model with private R&D financing, we investigate the impact of trade openness on innovation, trade pattern and welfare for two countries equal in all aspects, except for the quality of credit markets. We show that trade openness increases innovation only in the country with better credit market, while it has a negative impact on innovation when credit markets are less developed. With respect to trade pattern, the country with worse credit market imports high tech goods and exports traditional goods. In terms of welfare, opening to trade may lower the welfare of individuals in the short run, but in the long run all of them are better o under free trade than if they were under autarky

Suggested Citation

  • Cristina Terra & Enrico Vasconcelos, 2017. "Credit Market Quality, Innovation and Trade," Working Papers Series 458, Central Bank of Brazil, Research Department.
  • Handle: RePEc:bcb:wpaper:458
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    References listed on IDEAS

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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