Financial Development, Endogenous Dependence on External Financing, and Trade

ByeongHwa Choi

Economica, 2020, vol. 87, issue 346, 530-587

Abstract: Influential papers on how credit constraints affect international trade have shown a tendency to assume that asset tangibility and the share of external borrowing are exogenous industry characteristics that are time‐ and country‐invariant. In the finance literature, however, the share of external borrowing is viewed as endogenous and dependent on the amount of collateral that a firm can provide (and thus, implicitly, on its asset tangibility). Drawing from the finance literature, I hypothesize that there are supply‐side factors that exert substantial influences on the share of external financing. I test this new perspective with country‐ and industry‐specific measures of asset tangibility and external borrowing. I find that (i) the share of external borrowing increases in asset tangibility, and (ii) the sectoral rankings of asset tangibility and the share of external borrowing vary significantly across countries. Further, I develop a theoretical model to investigate the impact of financial development and asset tangibility on the demand and supply of external finance and exports. The model yields theoretical predictions that are consistent with, and provide intuition for, the above results. Both the model and my empirical results demonstrate that industries with more tangible assets export more from countries with high levels of financial development.

Date: 2020
References: Add references at CitEc
Citations: View citations in EconPapers (10)

Downloads: (external link)
https://doi.org/10.1111/ecca.12309

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:bla:econom:v:87:y:2020:i:346:p:530-587

Ordering information: This journal article can be ordered from
http://www.blackwell ... bs.asp?ref=0013-0427

Access Statistics for this article

Economica is currently edited by Frank Cowell, Tore Ellingsen and Alan Manning

More articles in Economica from London School of Economics and Political Science Contact information at EDIRC.
Bibliographic data for series maintained by Wiley Content Delivery ().