Working Paper

Financial Development and International Trade


Abstract: This paper studies the industry-level and aggregate implications of financial development on international trade. I set up a multi-industry general equilibrium model of international trade with heterogeneous firms subject to financial frictions. Industries differ in capital-intensity, which leads to differences in external finance dependence. The model is parameterized to match key features of firm-level data. Financial development leads to substantial reallocation of international trade shares from labor- to capital-intensive industries, with minor effects at the aggregate-level. These findings are consistent with estimates from cross-country industry-level and aggregate data.

https://doi.org/10.20955/wp.2018.015

Status: Published in Journal of Political Economy

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Bibliographic Information

Provider: Federal Reserve Bank of St. Louis

Part of Series: Working Papers

Publication Date: 2018-08-01

Number: 2018-015

Note: Publisher DOI: https://doi.org/10.1086/716564

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