EconPapers    
Economics at your fingertips  
 

Financial choice in a non-Ricardian model of trade

Katheryn Russ () and Diego Valderrama ()

No 2009-27, Working Paper Series from Federal Reserve Bank of San Francisco

Abstract: We join the new trade theory with a model of choice between bank and bond financing to show the differential effects of financial policy on the distribution of firm size, welfare, aggregate output, gains from trade, and the real exchange rate in a small open economy. Increasing bank efficiency and reducing bond transaction costs both increase welfare but have opposite effects on the extensive margin of trade, aggregate exports, and the real exchange rate. Increasing the degree of trade openness increases firms' relative demand for bond versus bank financing. We identify a financial switching channel for gains from trade where increasing access to export markets allows firms to overcome high fixed costs of bond issuance to secure a lower marginal cost of capital.

Keywords: Trade; Bank loans; Bond market (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2009
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (2) Track citations by RSS feed

Downloads: (external link)
http://www.frbsf.org/publications/economics/papers/2009/wp09-27bk.pdf (application/pdf)

Related works:
Working Paper: Financial Choice in a Non-Ricardian Model of Trade (2010) Downloads
Working Paper: Financial Choice in a Non-Ricardian Model of Trade (2009) Downloads
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:fip:fedfwp:2009-27

Ordering information: This working paper can be ordered from

Access Statistics for this paper

More papers in Working Paper Series from Federal Reserve Bank of San Francisco Contact information at EDIRC.
Bibliographic data for series maintained by Federal Reserve Bank of San Francisco Research Library ().

 
Page updated 2019-10-11
Handle: RePEc:fip:fedfwp:2009-27