Harmful Pro-Competitive Effects of Trade in Presence of Credit Market Frictions
Reto Foellmi () and
No 13538, CEPR Discussion Papers from C.E.P.R. Discussion Papers
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: credit market frictions; International trade; Polarization; productivity (search for similar items in EconPapers)
JEL-codes: F13 O11 O16 (search for similar items in EconPapers)
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Working Paper: Harmful Pro-Competitive Effects of Trade in Presence of Credit Market Frictions (2019)
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