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Financial constraints and international trade with endogenous mode of competition

Author

Listed:
  • Antoine Bouet

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux)

  • Anne-Gael Vaubourg

    (Larefi - Laboratoire d'analyse et de recherche en économie et finance internationales - UB - Université de Bordeaux)

Abstract

The paper examines how financial constraints affect firms' decisions to export when the mode of intra-sectoral competition is endogenous. We propose an extension of Neary and Tharakan's (2012) model, in which firms resort to external funders to finance investments in production capacities. Sectors differ in financial constraint and the cost of capital increases with the level of financial constraint. We first show that a weaker financial constraint allows firms to adopt a Cournot (rather than a Bertrand) pricing scheme and generate a high duopoly profit. Consequently, less financially constrained sectors are more likely to export. We also exhibit a new transmission channel of financial crisis. By increasing the financial cost of exporting and making it more difficult to engage in a Cournot behavior, a financial shock reduces both the intensive and extensive margins of trade.

Suggested Citation

  • Antoine Bouet & Anne-Gael Vaubourg, 2016. "Financial constraints and international trade with endogenous mode of competition," Post-Print hal-03428485, HAL.
    • Handle: RePEc:hal:journl:hal-03428485
    DOI: 10.1016/j.jbankfin.2016.03.007
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    Cited by:

    1. Teng Zhang & Yanlin Xing & Hua Shang, 2024. "Foreign bank entry and export quality upgrading: evidence from a quasi-natural experiment set in China," Empirical Economics, Springer, vol. 66(5), pages 1975-2005, May.
    2. Kais Mtar & Walid Belazreg, 2023. "On the nexus of innovation, trade openness, financial development and economic growth in European countries: New perspective from a GMM panel VAR approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 766-791, January.

    More about this item

    Keywords

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    JEL classification:

    • G01 - Financial Economics - - General - - - Financial Crises
    • G11 - Financial Economics - - General Financial Markets - - - Portfolio Choice; Investment Decisions
    • G31 - Financial Economics - - Corporate Finance and Governance - - - Capital Budgeting; Fixed Investment and Inventory Studies
    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation

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