Credit constraints, firm selection, and growth: The international transmission of a credit crunch via trade

Ryoji Ohdoi, Kazuo Mino () and Yunfang Hu ()
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Kazuo Mino: Kyoto Institute of Economic Research, Kyoto University
Yunfang Hu: Graduate School of Economics, Kobe University

No 256-2, Discussion Paper Series from School of Economics, Kwansei Gakuin University

Abstract: This study develops a two-country, heterogeneous-firm model of trade and growth with country-specific credit constraints to examine firm selection as a channel through which a credit crunch is internationally transmitted. Under mild conditions, a credit crunch in one country reduces growth rates in both countries in the short and the long run. Even the country not directly hit by the shock experiences a growth slowdown because the shock reduces its export profitability, inducing firms to shift from exporting to domestic sales. This change in firm selection hinders asset accumulation in that country. We further compare the effects of the credit crunch under financial autarky and financial integration and find that trade alone can generate cross-border transmission of financial shocks, even in the absence of international financial flows.

Keywords: Credit crunch; Trade-induced spillovers; Firm selection; Financial frictions; Endogenous growth (search for similar items in EconPapers)
JEL-codes: F12 F43 O16 O41 (search for similar items in EconPapers)
Pages: 35 pages
Date: 2023-08, Revised 2026-06
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http://192.218.163.163/RePEc/pdf/kgdp256-2.pdf Revised version, 2026 (application/pdf)

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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:256-2

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