Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/263734 
Year of Publication: 
2022
Series/Report no.: 
CESifo Working Paper No. 9804
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper introduces finance or credit in the Dixit-Stiglitz-Krugman (DSK) model of international trade. It identifies mechanisms by which finance can affect the main results of the conventional model. The key results are as follows. Perfect credit market does not affect number of varieties or output per variety, but it affects wage and interest rate, thus affecting income distribution. With a minimum wage and unemployment availability of credit affects number of varieties. With imperfect credit market, wealthier firms face lower cost of credit and produce greater number of varieties and given labour force less output per variety. Thus, availability of finance will determine a specific trade pattern between richer and poorer nations both with unemployment and imperfect credit market , a result in stark contrast with the conventional model with indeterminate pattern of trade.
Subjects: 
product variety
factor mobility
unemployment
finance
trade
JEL: 
F16
F20
J31
Document Type: 
Working Paper
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