IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

Trade liberalization and credit constraints: Why opening up may fail to promote convergence

  • Peters, Katrin
  • Schnitzer, Monika

Recent evidence suggests that despite opening up a country for trade, the productivity gap between developed and emerging economies often does not close. This paper examines credit constraints as one channel held responsible for hampering convergence. Specifically, we extend a Melitz and Ottaviano (2008) type trade model with variable mark-ups to allow for endogenous technology adoption. We consider a framework with two countries that potentially differ with respect to credit market development. Firms have the option to adopt a more efficient technology by paying some fixed cost. A fraction of the fixed technology adoption cost has to be financed externally: in a less developed credit market, the costs of external finance and thus the total costs of technology adoption are higher. A reduction in trade costs raises demand abroad (pro technology-adoption effect) but reduces demand at home because of import competition (anti technology-adoption effect). We find that trade liberalization increases economic performance, that is average productivity and technology adoption, in both countries but that the productivity gap widens. Simulations show that the welfare gap widens too. Opening up without sufficient access to external funding thus fails to promote convergence.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://epub.ub.uni-muenchen.de/13174/1/380.pdf
Download Restriction: no

Paper provided by Free University of Berlin, Humboldt University of Berlin, University of Bonn, University of Mannheim, University of Munich in its series Discussion Paper Series of SFB/TR 15 Governance and the Efficiency of Economic Systems with number 380.

as
in new window

Length:
Date of creation: Apr 2012
Date of revision:
Handle: RePEc:trf:wpaper:380
Contact details of provider: Postal: Geschwister-Scholl-Platz 1, D-80539 Munich, Germany
Phone: +49-(0)89-2180-3405
Fax: +49-(0)89-2180-3510
Web page: http://www.sfbtr15.de/

More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. BEHRENS, Kristian & OTTAVIANO, Gianmarco I. P. & MION, Giordano, 2007. "Industry reallocations in a globalizing economy," CORE Discussion Papers 2007012, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  2. Alfonso Irarrazabal & Andreas Moxnes & Luca David Opromolla, 2013. "The Tip of the Iceberg: A Quantitative Framework for Estimating Trade Costs," NBER Working Papers 19236, National Bureau of Economic Research, Inc.
  3. Massimo Del Gatto & Giordano Mion & Gianmarco I.P. Ottaviano, 2006. "Trade Integration, Firm Selection and the Costs of Non-Europe," Development Working Papers 218, Centro Studi Luca d\'Agliano, University of Milano.
  4. OTTAVIANO, Gianmarco & THISSE, Jacques-François, 1999. "Agglomeration and trade revisited," CORE Discussion Papers 1999041, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  5. Gorodnichenko, Yuriy & Schnitzer, Monika, 2010. "Financial Constraints and Innovation: Why Poor Countries Don't Catch Up," IZA Discussion Papers 4786, Institute for the Study of Labor (IZA).
  6. Bronwyn H. Hall & Josh Lerner, 2009. "The Financing of R&D and Innovation," NBER Working Papers 15325, National Bureau of Economic Research, Inc.
  7. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
  8. Gianmarco I.P. Ottaviano & Daria Taglioni & Filippo di Mauro, 2009. "The euro and the competitiveness of European firms," Economic Policy, CEPR;CES;MSH, vol. 24, pages 5-53, 01.
  9. Kalina Manova, 2008. "Credit Constraints, Heterogeneous Firms, and International Trade," NBER Working Papers 14531, National Bureau of Economic Research, Inc.
  10. Andrew Atkeson & Ariel Burstein, 2010. "Innovation, firm dynamics, and international trade," Staff Report 444, Federal Reserve Bank of Minneapolis.
  11. Giammario Impullitti & Omar Licandro, 2010. "Trade, Firm Selection, and Innovation: the Competition Channel," Working Papers 495, Barcelona Graduate School of Economics.
  12. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  13. Bulent Unel, 2013. "The Interaction Between Technology Adoption and Trade When Firms are Heterogeneous," Review of International Economics, Wiley Blackwell, vol. 21(4), pages 797-808, 09.
  14. Paula Bustos, 2011. "Trade Liberalization, Exports, and Technology Upgrading: Evidence on the Impact of MERCOSUR on Argentinian Firms," American Economic Review, American Economic Association, vol. 101(1), pages 304-40, February.
  15. Buch, Claudia M. & Kesternich, Iris & Lipponer, Alexander & Schnitzer, Monika, 2009. "Financial Constraints and the Margins of FDI," Discussion Papers in Economics 11054, University of Munich, Department of Economics.
  16. Hajivassiliou, V. & Savignac, F., 2008. "Financing Constraints and a Firm's Decision and Ability to Innovate: Establishing Direct and Reverse Effects," Working papers 202, Banque de France.
  17. Ottaviano, Gianmarco & Melitz, Marc, 2008. "Market Size, Trade, and Productivity," Scholarly Articles 3229096, Harvard University Department of Economics.
  18. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc.
  19. Antonio Navas-Ruiz & Davide Sala, 2007. "Technology adoption and the selection effect of trade," Economics Working Papers we076737, Universidad Carlos III, Departamento de Economía.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:trf:wpaper:380. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Alexandra Frank)

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.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with 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 profile, as there may be some citations waiting for confirmation.

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

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.