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