Economics at your fingertips  

Financial Frictions and Trade Dynamics

Paul Bergin, Ling Feng and Ching-Yi Lin

No 24503, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: This paper demonstrates theoretically that a financial shock can have very persistent effects on international trade. Motivation is taken from the aftermath of the dramatic trade collapse in 2008-9, which despite a substantial recovery, has left a persistently slower growth rate in trade. We find conditions under which a transitory financial shock significantly reduces the investment by firms in entering the export market, and that this can have long-lasting effects on the range of goods exported and hence overall trade. Important to our mechanism are endogenous capital structure decisions by firms in response to the financial shock, and firm entry investment that requires traded goods. This mechanism provides an example of how firm dynamics can serve as a potent propagation mechanism, generating very long-lasting effects of transitory macroeconomic shocks.

JEL-codes: F4 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2018-04
Note: IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Published as Paul Bergin & Ling Feng & Ching-Yi Lin, 2018. "Financial Frictions and Trade Dynamics," IMF Economic Review, vol 66(3), pages 480-526.

Downloads: (external link) (application/pdf)
Access to the full text is generally limited to series subscribers, however if the top level domain of the client browser is in a developing country or transition economy free access is provided. More information about subscriptions and free access is available at Free access is also available to older working papers.

Related works:
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:

Ordering information: This working paper can be ordered from
The price is Paper copy available by mail.

Access Statistics for this paper

More papers in NBER Working Papers from National Bureau of Economic Research, Inc National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.. Contact information at EDIRC.
Bibliographic data for series maintained by ().

Page updated 2019-04-17
Handle: RePEc:nbr:nberwo:24503