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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.

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File URL: http://www.dial.ird.fr/media/ird-sites-d-unites-de-recherche/dial/documents/publications/doc_travail/2011/2011-12
File Function: First version, 2011
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Paper provided by DIAL (Développement, Institutions et Mondialisation) in its series Working Papers with number DT/2011/12.

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Length: 32 pages
Date of creation: Nov 2011
Date of revision:
Handle: RePEc:dia:wpaper:dt201112
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  1. Joao Santos Silva & Silvana Tenreyro, 2005. "The log of gravity," LSE Research Online Documents on Economics 3744, London School of Economics and Political Science, LSE Library.
  2. James E. Anderson & Eric van Wincoop, 2001. "Gravity with Gravitas: A Solution to the Border Puzzle," NBER Working Papers 8079, National Bureau of Economic Research, Inc.
  3. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934 Elsevier.
  4. Mark J. Melitz, 2002. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," NBER Working Papers 8881, National Bureau of Economic Research, Inc.
  5. Andrew K. Rose, 2002. "Do We Really Know that the WTO Increases Trade?," NBER Working Papers 9273, National Bureau of Economic Research, Inc.
  6. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  7. Mitali Das & Whitney K. Newey & Francis Vella, 2003. "Nonparametric Estimation of Sample Selection Models," Review of Economic Studies, Wiley Blackwell, vol. 70(1), pages 33-58, January.
  8. J.M.C. Santos Silva & Silvana Tenreyro, 2008. "Trading Partners and Trading Volumes:Implementing the Helpman-Melitz-Rubinstein Model Empirically," Economics Discussion Papers 662, University of Essex, Department of Economics.
  9. Andrei A. Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
  10. 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.
  11. Beck, Thorsten, 2001. "Financial development and international trade : is there a link?," Policy Research Working Paper Series 2608, The World Bank.
  12. Nicolas Berman & Jérôme Héricourt, 2008. "Financial factors and the margins of trade : evidence from cross-country firm-level data," Documents de travail du Centre d'Economie de la Sorbonne bla08050, Université Panthéon-Sorbonne (Paris 1), Centre d'Economie de la Sorbonne.
  13. Rajan, Raghuram G & Zingales, Luigi, 1998. "Financial Dependence and Growth," American Economic Review, American Economic Association, vol. 88(3), pages 559-86, June.
  14. Thomas Chaney, 2013. "Liquidity Constrained Exporters," NBER Working Papers 19170, National Bureau of Economic Research, Inc.
  15. 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.
  16. Antoine Berthou, 2010. "The Distorted Effect of Financial Development on International Trade Flows," Working Papers 2010-09, CEPII research center.
  17. Scott L. Baier & Jeffrey H. Bergstrand, 2005. "Do free trade agreements actually increase members’ international trade?," Working Paper 2005-03, Federal Reserve Bank of Atlanta.
  18. 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.
  19. 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.
  20. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  21. Beck, Thorsten, 2001. "Financial dependence and international trade," Policy Research Working Paper Series 2609, The World Bank.
  22. Thomas Chaney, 2008. "Distorted Gravity: The Intensive and Extensive Margins of International Trade," American Economic Review, American Economic Association, vol. 98(4), pages 1707-21, September.
  23. King, Robert G. & Levine, Ross, 1993. "Finance and growth : Schumpeter might be right," Policy Research Working Paper Series 1083, The World Bank.
  24. Mirabelle Muûls, 2008. "Exporters and credit constraints. A firm-level approach," Working Paper Research 139, National Bank of Belgium.
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