This paper studies the impact of financial constraints on exporter dynamics, and the role of financial intermediation in international trade. We propose a two-country general equilibrium model economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial markets are endogenously incomplete because of private information, and financial constraints arise as a consequence of optimal financial contracts. In equilibrium, competitive financial intermediaries actively channel individuals' short-term deposits to fund a diversified portfolio of long-term risky firms. Young and small firms operate below their efficient level, and their financial constraint is relaxed as the entrepreneur's claim to future cash-flows increases. Consistent with empirical regularities, there is a substantial year-to-year transition in and out of export markets for smaller firms, and new exporters account only for a small share of total exports. Established exporters are less likely to exit export markets and tend to experience slower, albeit more stable growth.

Additional Metadata
Keywords private information, dynamic optimal contracts, exporter dynamics, financial intermediation
Publisher Department of Economics
Series Carleton Economic Papers
Citation
Gross, T, & Verani, S. (2013). Financing Constraints, Firm Dynamics, and International Trade (No. CEP 13-07). Carleton Economic Papers. Department of Economics.