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Financial Development and Export Concentration

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  • Unger, Florian

Abstract

This paper analyzes the impact of financial development on export concentration. I incorporate credit constraints into a trade model with heterogeneous exporters and endogenous quality choice. The model predicts that financial development increases innovation activity and export shares of larger firms. In contrast, a model variant in which exporters have to finance production costs instead of investments suggests a negative impact of financial development on export concentration as smaller firms benefit more from relaxing credit constraints. These opposing predictions are tested using export data for 70 countries over the period 1997-2014 and exploiting variation in external finance dependence across sectors. I find strong support for the predictions of the investment model that higher financial development increases export concentration among top firms, especially in sectors with high external finance dependence and large scope for quality differentiation. This effect is also present within firms: financial development induces exporters to skew their sales towards the top performing products. I finally show in a counterfactual analysis that financial frictions are quantitatively important to explain the variation in the skewness of exports across countries and sectors.
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Suggested Citation

  • Unger, Florian, 2023. "Financial Development and Export Concentration," VfS Annual Conference 2023 (Regensburg): Growth and the "sociale Frage" 277570, Verein für Socialpolitik / German Economic Association.
    • Handle: RePEc:zbw:vfsc23:277570
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    References listed on IDEAS

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    Full references (including those not matched with items on IDEAS)

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    More about this item

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade

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