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Newtoning financial development with heterogeneous firms


  • Rafael Cezar

    () (LEDa, UMR DIAL-Université Paris-Dauphine)


(english) This article theoretically and empirically tests the link between financial constraints and the extensive (proportion of exporters) and intensive (volume of exports) margins of international trade. The article's main contribution is its macroeconomic analysis of this relationship, which is further reaching than the sector-based focus found in the current literature. It also presents new information on firm behavior under financial constraints. The paper develops a trade model with heterogeneous firms and shows that countries with a high level of financial development have a lower productivity cut-off above which firms export and a higher proportion of exporting firms. Nevertheless, financial development is not correlated with firms' export volumes once they become exporters. An empirical analysis is developed on the basis of an international trade database on 135 countries between 1994 and 2007. The empirical analysis estimates a two-step gravity equation using panel data and confirms the first theoretical proposition that finance has a positive impact on the extensive margin. However, the intensive margin results are striking. They find a negative relationship between financial development and trade flows, confirmed by all the sensitivity tests. Despite the positive effect of financial development found by the literature in some economic sectors, the macroeconomic impact on overall exports was negative during the analyzed period. _________________________________ (français) Cet article teste théoriquement et empiriquement le lien entre la contrainte financière et les marges extensive (la proportion de firmes exportatrices) et intensive (le volume des exportations) du commerce international. Sa principale contribution porte sur une analyse macroéconomique de la relation, malgré le focus sectoriel donné par la littérature. Il présent également des nouvelles informations sur le comportement des firmes sous contrainte financière. L'article développe un modèle de commerce international avec des firmes hétérogènes et démontre que les pays les plus développés financièrement possèdent un seuil de productivité à partir duquel les firmes exportent inférieur et une proportion plus élevée de firmes exportatrices. Néanmoins le développement financier n'est pas corrélé avec le volume exporté par les firmes une fois qu'elles sont devenues exportatrices. Une analyse empirique teste le modèle en utilisant une base de données du commerce de 135 pays entre 1994 et 2007. L'analyse empirique estime une équation de gravité en deux stages avec des données de panel et confirme la première proposition théorique. Cependant les résultats concernant la marge intensive sont frappants. Ils montrent une relation négative entre le développement financier et les flux de commerce, confirmée par tous les tests de robustesse. Malgré l'effet positif du développement financier sur quelques secteurs économiques indiqué par la littérature, l'impact macroéconomique sur les exportations totales a été négatif pendant la période analysée.

Suggested Citation

  • Rafael Cezar, 2011. "Newtoning financial development with heterogeneous firms," Working Papers DT/2011/12, DIAL (Développement, Institutions et Mondialisation).
  • Handle: RePEc:dia:wpaper:dt201112

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    References listed on IDEAS

    1. Andrei A. Levchenko, 2007. "Institutional Quality and International Trade," Review of Economic Studies, Oxford University Press, vol. 74(3), pages 791-819.
    2. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-1721, September.
    3. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
    4. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    5. Thorsten Beck, 2003. "Financial Dependence and International Trade," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 296-316, May.
    6. Andrew K. Rose, 2004. "Do We Really Know That the WTO Increases Trade?," American Economic Review, American Economic Association, vol. 94(1), pages 98-114, March.
    7. Hur, Jung & Raj, Manoj & Riyanto, Yohanes E., 2006. "Finance and trade: A cross-country empirical analysis on the impact of financial development and asset tangibility on international trade," World Development, Elsevier, vol. 34(10), pages 1728-1741, October.
    8. J. M. C. Santos Silva & Silvana Tenreyro, 2015. "Trading Partners and Trading Volumes: Implementing the Helpman–Melitz–Rubinstein Model Empirically," Oxford Bulletin of Economics and Statistics, Department of Economics, University of Oxford, vol. 77(1), pages 93-105, February.
    9. Robert G. King & Ross Levine, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, Oxford University Press, vol. 108(3), pages 717-737.
    10. Heckman, James, 2013. "Sample selection bias as a specification error," Applied Econometrics, Publishing House "SINERGIA PRESS", vol. 31(3), pages 129-137.
    11. Kletzer, Kenneth & Bardhan, Pranab, 1987. "Credit markets and patterns of international trade," Journal of Development Economics, Elsevier, vol. 27(1-2), pages 57-70, October.
    12. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-586, June.
    13. Antoine Berthou, 2010. "The Distorted Effect of Financial Development on International Trade Flows," Working Papers 2010-09, CEPII research center.
    14. J. M. C. Santos Silva & Silvana Tenreyro, 2006. "The Log of Gravity," The Review of Economics and Statistics, MIT Press, vol. 88(4), pages 641-658, November.
    15. Wooldridge, Jeffrey M., 1995. "Selection corrections for panel data models under conditional mean independence assumptions," Journal of Econometrics, Elsevier, vol. 68(1), pages 115-132, July.
    16. 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.
    17. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
    18. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Oxford University Press, vol. 70(1), pages 33-58.
    19. Mirabelle Muûls, 2008. "Exporters and credit constraints. A firm-level approach," Working Paper Research 139, National Bank of Belgium.
    20. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
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    Cited by:

    1. Rafael Cezar, 2012. "Le développement financier et les avantages commerciaux," Working Papers DT/2012/19, DIAL (Développement, Institutions et Mondialisation).
    2. Rafael Cezar, 2012. "Un nouvel indice du développement financier," Working Papers DT/2012/04, DIAL (Développement, Institutions et Mondialisation).

    More about this item


    heterogeneous firms; international trade; financial development; firmes hétérogènes; commerce international; développement financier.;

    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

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