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Financial Development, Financial Specialization, and Trade

Author

Listed:
  • Minetti, Raoul
  • Murro, Pierluigi
  • Rowe, Nick

Abstract

Banks differ in specialization. We study the aggregate and distributive effects of financial development in a heterogeneous-firm model where firms can produce for domestic and foreign markets and banks specialize in monitoring firms’ domestic or foreign activities. Internationally oriented banks promote the growth of larger incumbent exporters. Locally specialized banks enable financially vulnerable firms to enter foreign markets but induce incumbent exporters to focus on domestic markets and lower their export intensities, fragmenting the export sector. The quantitative analysis reveals that financial development boosts total output, moderates inter-firm inequalities driven by internationalization, but may reduce aggregate trade. The predictions are supported by evidence from a major Italian banking deregulation.

Suggested Citation

  • Minetti, Raoul & Murro, Pierluigi & Rowe, Nick, 2025. "Financial Development, Financial Specialization, and Trade," MPRA Paper 124370, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:124370
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    More about this item

    Keywords

    Financial Development; Banking Specialization; International Trade; Credit;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F4 - International Economics - - Macroeconomic Aspects of International Trade and Finance
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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