The role of finance in production and international trade

Sugata Marjit, Gouranga G. Das and Lei Yang

The North American Journal of Economics and Finance, 2025, vol. 75, issue PA

Abstract: We introduce finance in a neo-classical general equilibrium model of production and international trade to integrate the core microeconomic theory with the theory of finance. The stock of credit, as past savings, finances employment and the acquisition of machines or capital goods. The availability of finance or international financial flows does not affect production or trade patterns, except for nominal factor prices, in undistorted competitive structures. However, distortions such as unemployment, imperfect credit markets, and factor mobility do affect real outcomes and trade. Our results are consistent with contemporary empirical evidence and have policy implications for financial development and institutional quality. Numerical illustrations provide further insights.

Keywords: Credit; General Equilibrium; Trade Pattern; Imperfect Credit Market; Financial Development; Unemployment (search for similar items in EconPapers)
JEL-codes: B12 B13 B17 F11 F16 F63 F65 O12 (search for similar items in EconPapers)
Date: 2025
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Persistent link: https://EconPapers.repec.org/RePEc:eee:ecofin:v:75:y:2025:i:pa:s1062940824001980

DOI: 10.1016/j.najef.2024.102273

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