Financial Development, Fixed Costs, and International Trade

Bo Becker, Jinzhu Chen and David Greenberg

The Review of Corporate Finance Studies, 2013, vol. 2, issue 1, 1-28

Abstract: Exports require significant up-front costs in product design, marketing, and distribution. These are intangible, firm-specific investments that are likely difficult to finance externally. We argue that a developed financial system can therefore facilitate exports. We test this prediction and find support for it. First, financial development is associated with more exports in industries in which fixed costs are high as well as to importers that require high costs. Second, trade dynamics are affected by financial development. In countries with better finance, exports are more sensitive to exchange rates. Finally, we predict and document that countries with more developed finance experience more volatile exports.

JEL-codes: F14 F36 G20 G30 (search for similar items in EconPapers)
Date: 2013
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Citations: View citations in EconPapers (42)

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