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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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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. Kletzer, Kenneth & Bardhan, Pranab, 1986. "Credit Markets and Patterns of International Trade," Department of Economics, Working Paper Series qt1g36f3sd, Department of Economics, Institute for Business and Economic Research, UC Berkeley.
  2. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
  3. 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.
  4. Santos Silva, J.M.C & Tenreyro, Silvana, 2005. "The Log of Gravity," CEPR Discussion Papers 5311, C.E.P.R. Discussion Papers.
  5. Nicolas Berman & Jérôme Héricourt, 2008. "Financial Factors and the Margins of Trade: Evidence from Cross-Country Firm-Level Data," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) halshs-00321632, HAL.
  6. 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.
  7. Thorsten Beck, 2003. "Financial Dependence and International Trade," Review of International Economics, Wiley Blackwell, vol. 11(2), pages 296-316, 05.
  8. Andrew K. Rose, 2002. "Do We Really KNow that the WTO Increases Trade?," Working Papers 182002, Hong Kong Institute for Monetary Research.
  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. Antoine Berthou, 2010. "The Distorted Effect of Financial Development on International Trade Flows," Working Papers 2010-09, CEPII research center.
  11. Heckman, James J, 1979. "Sample Selection Bias as a Specification Error," Econometrica, Econometric Society, vol. 47(1), pages 153-61, January.
  12. 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.
  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. 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.
  15. 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.
  16. 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.
  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. repec:esx:essedp:662 is not listed on IDEAS
  19. Mirabelle Muûls, 2008. "Exporters and credit constraints. A firm-level approach," Working Paper Research 139, National Bank of Belgium.
  20. Andrei A Levchenko, 2004. "Institutional Quality and International Trade," IMF Working Papers 04/231, International Monetary Fund.
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