IDEAS home Printed from https://ideas.repec.org/p/cii/cepidt/2010-09.html
   My bibliography  Save this paper

The Distorted Effect of Financial Development on International Trade Flows

Author

Listed:
  • Antoine Berthou

Abstract

This paper investigates the effects of financial development on the intensive and extensive margins of countries exports, at different stages of economic development. The paper develops a partial equilibrium model with monopolistic competition. In this model, firms are heterogeneous in terms of productivity and have access to external liquidity. The effect of financial development on the intensive and extensive margins of countries exports is predicted to be positive, especially in sectors with a higher demand for external finance. In countries with poor financial institutions though, only the most productive firms benefit from an increased access to financial resources and start exporting, with little effect on aggregate exports. The effect of financial development on exports is therefore higher for a better initial development of financial institutions. The empirical analysis confirms that financial development promotes both the intensive and extensive margins of countries’ exports. This is more the case in industries with a higher demand for external finance. Though, more than 60% of the effect of financial development channels through the intensive margin. In industries where the demand for external finance is high, the effect of financial development is the highest in economies characterized by an intermediate development of financial institutions, and the lowest in countries with poor or advanced financial institutions. This contradicts the traditional expectation that financial development benefits more in terms of exports to countries where financial constraints are the most binding.

Suggested Citation

  • Antoine Berthou, 2010. "The Distorted Effect of Financial Development on International Trade Flows," Working Papers 2010-09, CEPII research center.
  • Handle: RePEc:cii:cepidt:2010-09
    as

    Download full text from publisher

    File URL: http://www.cepii.fr/PDF_PUB/wp/2010/wp2010-09.pdf
    Download Restriction: no

    References listed on IDEAS

    as
    1. Thierry Mayer & Keith Head, 2002. "Illusory Border Effects: Distance Mismeasurement Inflates Estimates of Home Bias in Trade," Working Papers 2002-01, CEPII research center.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. repec:dau:papers:123456789/7596 is not listed on IDEAS
    2. Schmidt-Eisenlohr, Tim, 2013. "Towards a theory of trade finance," Journal of International Economics, Elsevier, vol. 91(1), pages 96-112.
    3. A. Berthou & G. Horny & J-S. Mésonnier, 2018. "Dollar Funding and Firm-Level Exports," Working papers 666, Banque de France.
    4. ByeongHwa Choi & Volodymyr Lugovskyy, 2015. "Positive and Negative Effects of Financial Development on Export Prices," Caepr Working Papers 2015-020 Classification-F, Center for Applied Economics and Policy Research, Economics Department, Indiana University Bloomington.
    5. Berman, Nicolas & Héricourt, Jérôme, 2010. "Financial factors and the margins of trade: Evidence from cross-country firm-level data," Journal of Development Economics, Elsevier, vol. 93(2), pages 206-217, November.
    6. Joachim Jarreau & Sandra Poncet, 2014. "Credit constraints, firm ownership and the structure of exports in China," International Economics, CEPII research center, issue 139, pages 152-173.
    7. Rafael Cezar, 2011. "Newtoning financial development with heterogeneous firms," Working Papers DT/2011/12, DIAL (Développement, Institutions et Mondialisation).

    More about this item

    Keywords

    Bilateral Trade; Trade margins; Financial Development;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:cii:cepidt:2010-09. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (). General contact details of provider: http://edirc.repec.org/data/cepiifr.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.