Harmful Pro-Competitive Effects of Trade in Presence of Credit Market Frictions

Reto Foellmi and Manuel Oechslin

No 13538, CEPR Discussion Papers from Centre for Economic Policy Research

Abstract: We explore the consequences of international trade in an economy that encompasses technology choice and an endogenous distribution of mark-ups due to credit market frictions. We show that in such an environment a gradual opening of trade may -- but not necessarily must -- have a negative impact on productivity and overall output. The reason is that the pro-competitive effects of trade reduce mark-ups and hence make access to credit more difficult for smaller firms. As a result, smaller firms -- while not driven out of the market -- may be forced to switch to less productive technologies.

Keywords: International trade; Credit market frictions; Productivity; Polarization (search for similar items in EconPapers)
JEL-codes: F13 O11 O16 (search for similar items in EconPapers)
Date: 2019-02
New Economics Papers: this item is included in nep-int
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Related works:
Journal Article: Harmful Procompetitive Effects of Trade in Presence of Credit Market Frictions (2020)
Working Paper: Harmful Pro-Competitive Effects of Trade in Presence of Credit Market Frictions (2019)
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