Financial Development, Financial Specialization, and Trade

Raoul Minetti, Pierluigi Murro and Nick Rowe

MPRA Paper from University Library of Munich, Germany

Abstract: Banks differ in specialization. We study the aggregate and distributive effects of financial development in a heterogeneous-firm model where firms can produce for domestic and foreign markets and banks specialize in monitoring firms’ domestic or foreign activities. Internationally oriented banks promote the growth of larger incumbent exporters. Locally specialized banks enable financially vulnerable firms to enter foreign markets but induce incumbent exporters to focus on domestic markets and lower their export intensities, fragmenting the export sector. The quantitative analysis reveals that financial development boosts total output, moderates inter-firm inequalities driven by internationalization, but may reduce aggregate trade. The predictions are supported by evidence from a major Italian banking deregulation.

Keywords: Financial Development; Banking Specialization; International Trade; Credit (search for similar items in EconPapers)
JEL-codes: E44 F4 G21 G28 O16 (search for similar items in EconPapers)
Date: 2025-04
New Economics Papers: this item is included in nep-fdg
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