Financing Constraints, Firm Dynamics, and International Trade

Till Gross () and Stephane Verani

No 13-07, Carleton Economic Papers from Carleton University, Department of Economics

Abstract: This paper studies the impact of financial constraints on exporter dynamics, and the role of financial intermediation in international trade. We propose a two-country general equilibrium model economy in which entrepreneurs and lenders engage in longterm credit relationships. Financial markets are endogenously incomplete because of private information, and financial constraints arise as a consequence of optimal financial contracts. In equilibrium, competitive financial intermediaries actively channel individuals' short-term deposits to fund a diversified portfolio of long-term risky firms. Young and small firms operate below their efficient level, and their financial constraint is relaxed as the entrepreneur's claim to future cash- flows increases. Consistent with empirical regularities, there is a substantial year-to-year transition in and out of export markets for smaller firms, and new exporters account only for a small share of total exports. Established ex-porters are less likely to exit export markets and tend to experience slower, albeit more stable growth.

Keywords: private information; dynamic optimal contracts; exporter dynamics; financial intermediation (search for similar items in EconPapers)
JEL-codes: D82 F10 L14 (search for similar items in EconPapers)
Pages: 49 pages
Date: 2013-09-13
New Economics Papers: this item is included in nep-cta and nep-dge
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (8)

Published: Carleton Economic Papers

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Related works:
Working Paper: Financing Constraints, Firm Dynamics, and International Trade (2013)
Working Paper: Financing Constraints, Firm Dynamics, and International Trade (2012)
Working Paper: Financing Constraints, Firm Dynamics, and International Trade (2012)
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Persistent link: https://EconPapers.repec.org/RePEc:car:carecp:13-07

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