Financial Development & Commercial Advantage
Global Economy Journal, 2017, vol. 17, issue 1, 10
The article seeks to clarify the relationship between financial development and the marginal variation in the proportion of exporting firms (extensive margin) and the volume exported by each economic sector (intensive margin). We develop a theoretical model with two countries facing different levels of financial restrictions and input costs, several sectors differentiated by their dependence on external finance and heterogeneous firms producing with a combination of inputs. The model shows that financially developed countries experience a commercial advantage in financially dependent sectors and countries with more competitive cost structures experience an advantage and specialize in low financially dependent sectors. This relationship is true even within the manufacturing sectors. The model also indicates that financial development only affects trade in financially constrained sectors.
Keywords: international trade; specialization; commercial advantage; financial development; heterogeneous firms; theoretical model (search for similar items in EconPapers)
JEL-codes: F12 G20 (search for similar items in EconPapers)
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