Please use this identifier to cite or link to this item: https://hdl.handle.net/10419/199001 
Authors: 
Year of Publication: 
2019
Series/Report no.: 
CESifo Working Paper No. 7641
Publisher: 
Center for Economic Studies and ifo Institute (CESifo), Munich
Abstract: 
This paper analyzes the effects of credit frictions in a trade model where heterogeneous firms select both into exporting and into two types of external finance. In our framework, small producers face stronger credit frictions, pay a higher borrowing rate and rely on bank finance, whereas large firms have access to cheaper bond finance. We show that an increase in credit frictions induces firms to select into bank finance, which attenuates the negative implications on product variety and welfare. In the open economy, the presence of effective financial intermediation increases the welfare gains from trade. In a counterfactual analysis, we exploit that our framework nests a model with credit frictions and one type of finance as a special case, and we show that endogenous selection into external finance is an important channel of adjustment.
Subjects: 
international trade
external finance
credit constraints
heterogeneous firms
moral hazard
bank and bond finance
JEL: 
F12
G32
L11
Document Type: 
Working Paper
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