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Business Conditions and Default Risks across Countries

Author

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  • Pflüger, Michael P.

    () (University of Würzburg)

  • Russek, Stephan

    () (University of Passau)

Abstract

The risk of default that business firms face is very significant and differs widely across countries. This paper explores the links between countries' business conditions and international trade embedment and the default risk at the country level from a theoretical point of view. Our main contribution is to set up a general equilibrium model which allows us to derive sharp predictions concerning how key factors which shape a country's business and trade environment impact on the default risk of firms which operate in these environments. The predictions are in accord with readily available data.

Suggested Citation

  • Pflüger, Michael P. & Russek, Stephan, 2011. "Business Conditions and Default Risks across Countries," IZA Discussion Papers 5541, Institute for the Study of Labor (IZA).
  • Handle: RePEc:iza:izadps:dp5541
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    References listed on IDEAS

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    Cited by:

    1. Schröder, Philipp J.H. & Sørensen, Allan, 2012. "Firm exit, technological progress and trade," European Economic Review, Elsevier, vol. 56(3), pages 579-591.
    2. Wim Naudé, 2011. "Foreign Aid for Innovation: The Missing Ingredient in Private Sector Development?," Working Papers 2011/35, Maastricht School of Management.

    More about this item

    Keywords

    trade integration; firm death; business conditions and firm productivity; firm heterogeneity;

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F15 - International Economics - - Trade - - - Economic Integration
    • L25 - Industrial Organization - - Firm Objectives, Organization, and Behavior - - - Firm Performance

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