IDEAS home Printed from https://ideas.repec.org/p/kgu/wpaper/256-2.html
   My bibliography  Save this paper

Credit constraints, firm selection, and endogenous growth: The international transmission of a credit crunch via trade

Author

Listed:
  • Ryoji Ohdoi

    (School of Economics, Kwansei Gakuin University)

  • Kazuo Mino

    (Kyoto Institute of Economic Research, Kyoto University)

  • Yunfang Hu

    (Graduate School of Economics, Kobe University)

Abstract

This study develops a two-country, heterogeneous-firm model of trade and growth with country-specific credit constraints to examine the role of firm selection as a channel for the international transmission of a credit crunch in one country. For a permanent credit crunch, we derive the following results analytically. First, the long-run growth rate of the global economy inevitably declines. Second, even in a country not directly affected by the credit crunch, its growth rate declines in both the short run and the long run. Third, this decline occurs because export profitability declines in that country's tradable goods sector, prompting firms to shift from exporting to selling domestically. In addition, we conduct a numerical analysis to compare the effects of a credit crunch under two scenarios: financial autarky (i.e., trade in goods only) and financial integration. We find that, irrespective of the credit crunch being permanent or temporary, the effects on trade and growth are similar in both scenarios, suggesting that regulating international financial transactions may fail to mitigate the cross-border transmission of the shock.

Suggested Citation

  • Ryoji Ohdoi & Kazuo Mino & Yunfang Hu, 2023. "Credit constraints, firm selection, and endogenous growth: The international transmission of a credit crunch via trade," Discussion Paper Series 256-2, School of Economics, Kwansei Gakuin University, revised Apr 2025.
    • Handle: RePEc:kgu:wpaper:256-2
    as

    Download full text from publisher

    File URL: http://192.218.163.163/RePEc/pdf/kgdp256-2.pdf
    File Function: Revised version, 2025
    Download Restriction: no
    ---><---

    More about this item

    Keywords

    Banks; Endogenous growth; Heterogeneous firms; Asymmetric countries; Financial frictions; Country-specific credit crunch;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:kgu:wpaper:256-2. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no bibliographic references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Toshihiro Okada (email available below). General contact details of provider: https://edirc.repec.org/data/dekgujp.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.