Positive and Negative Effects of Financial Development on Export Prices

ByeongHwa Choi () and Volodymyr Lugovskyy
Additional contact information
ByeongHwa Choi: Indiana University

No 2015-020, CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington

Abstract: We present a model of international trade in which credit constrained firms endogenously choose quality and countries differ in their level of financial development. This model produces a novel result where the total effect of financial development on export prices exhibits a U-shaped relationship with the exporter's labor productivity. The effect is positive for countries with the lowest and highest levels of productivity and negative for the countries in the middle. This occurs because financial development has two opposing effects on export prices: it reduces the costs of production while enabling costly quality upgrading. We confirm this pattern using a sample of U.S. imports from all exporters worldwide. This finding suggests that financial development has different implications for countries with different levels of productivity and income.

Keywords: Financial development; Quality; Export prices; Labor productivity (search for similar items in EconPapers)
JEL-codes: F10 F14 G20 J24 O14 (search for similar items in EconPapers)
Pages: 32 pages
Date: 2015-10
New Economics Papers: this item is included in nep-eff and nep-int
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (1)

Downloads: (external link)
https://caepr.indiana.edu/RePEc/inu/caeprp/caepr2015-020.pdf (application/pdf)
Our link check indicates that this URL is bad, the error code is: 404 Not Found

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:inu:caeprp:2015020

Access Statistics for this paper

More papers in CAEPR Working Papers from Center for Applied Economics and Policy Research, Department of Economics, Indiana University Bloomington Contact information at EDIRC.
Bibliographic data for series maintained by Center for Applied Economics and Policy Research ().