A heterogeneous-firm model of trade and growth with country-specific credit constraints
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, Discussion Paper Series from School of Economics, Kwansei Gakuin University
This study constructs a two-country endogenous growth model with heterogeneous firms and asymmetric countries, where the asymmetry lies in the degree of financial frictions. The tradable intermediate goods sector consists of heterogeneous firms and requires specific goods for entry. These goods are produced by heterogeneous entrepreneurs facing credit constraints due to financial frictions. Using this framework, we derive the following results analytically. First, a permanent credit crunch in one country facilitates the exit of intermediate goods firms in that country; meanwhile, it decreases the profitability of exports of the other country’s intermediate goods firms, causing exporters to switch to selling their goods domestically. Second, under no international lending and borrowing, the credit crunch reduces the growth rates of both countries not only in the long run but also during the transition to a new balanced growth path. We also compare the long-run effects under such a financial autarky and financial integration.
Keywords: Banks; Endogenous growth; Heterogeneous firms; Asymmetric countries; Financial frictions; Country-specific credit crunch (search for similar items in EconPapers)
JEL-codes: F12 F43 O16 O41 (search for similar items in EconPapers)
Pages: 44 pages
New Economics Papers: this item is included in nep-cfn, nep-fdg, nep-gro, nep-ifn, nep-int and nep-sbm
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http://126.96.36.199/RePEc/pdf/kgdp256.pdf First version, 2023 (application/pdf)
Working Paper: A heterogeneous-firm model of trade and growth with country-specific credit constraints (2023)
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Persistent link: https://EconPapers.repec.org/RePEc:kgu:wpaper:256
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