Financial Development and International Trade
44 Pages Posted: 9 Aug 2018 Last revised: 21 Feb 2019
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Financial Development and International Trade
Financial Development and International Trade
Financial Development and International Trade
Date Written: 2018-08-01
Abstract
This paper studies the industry-level and aggregate implications of �nancial development on international trade. I set up a multi-industry general equilibrium model of international trade with heterogeneous �rms subject to �nancial frictions. Industries differ in capital-intensity, which leads to differences in external �nance dependence. The model is parameterized to match key features of �rm-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 �ndings are consistent with estimates from cross-country industry-level and aggregate data.
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