Working Paper

Financing Constraints, Firm Dynamics, and International Trade

Abstract: There is growing empirical support for the conjecture that access to credit is an important determinant of firms' export decisions. We study a multi-country general equilibrium economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial constraints arise in consequence of financials contracts that are optimal given information asymmetry. Consistent with empirical regularities, as firm age and size increase, the model implies decreasing mean and variance of fi rm growth and increasing fi rm survival. Exporters are larger, their survival in international markets increases with the time spent exporting, and the sales of older exporters are larger and more stable.

Keywords: private information; long-term financial contracts; exporter dynamics; international trade; financial intermediation;

JEL Classification: D82; F10; L14;

Bibliographic Information

Provider: Board of Governors of the Federal Reserve System (U.S.)

Part of Series: Finance and Economics Discussion Series

Publication Date: 2012-08

Number: 2012-68

Note: A revised version of this paper is posted as FEDS Working Paper 2013-02.