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Harmful Procompetitive Effects of Trade in Presence of Credit Market Frictions

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  • RETO FOELLMI
  • MANUEL OECHSLIN

Abstract

We explore the consequences of international trade in an economy that encompasses technology choice and an endogenous distribution of mark‐ups due to credit market frictions. We show that in such an environment a gradual opening of trade may—but not necessarily must—have a negative impact on productivity and overall output. The reason is that the procompetitive effects of trade reduce mark‐ups and hence make access to credit more difficult for smaller firms. As a result, smaller firms—while not driven out of the market—may be forced to switch to less productive technologies.

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  • Reto Foellmi & Manuel Oechslin, 2020. "Harmful Procompetitive Effects of Trade in Presence of Credit Market Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1493-1525, September.
    • Handle: RePEc:wly:jmoncb:v:52:y:2020:i:6:p:1493-1525
    DOI: 10.1111/jmcb.12634
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    Cited by:

    1. Reto Foellmi & Stefan Legge & Alexa Tiemann, 2021. "Innovation and trade in the presence of credit constraints," Canadian Journal of Economics/Revue canadienne d'économique, John Wiley & Sons, vol. 54(3), pages 1168-1205, November.

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    More about this item

    JEL classification:

    • O11 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Macroeconomic Analyses of Economic Development
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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