Credit constraints, endogenous innovations, and price setting in international trade

Publikation: Beiträge in ZeitschriftenZeitschriftenaufsätzeForschungbegutachtet


This article analyzes the role of credit frictions in a trade model where producers differ in their capabilities to conduct process and quality innovations and require external finance for investments. Accounting for cost-based and quality-based sorting of firms in a unified framework allows us to demonstrate that the reactions of prices and commonly used productivity measures do not necessarily reflect welfare implications. Credit frictions lead to distortions through aggravated access to finance and endogenous price adjustments so that the responses of quantity-based and revenue-based productivity differ substantially. In counterfactual scenarios, we show that these differential effects are quantitatively important.

ZeitschriftInternational Economic Review
Seiten (von - bis)1715-1747
Anzahl der Seiten33
PublikationsstatusErschienen - 11.2023
Extern publiziertJa

Bibliographische Notiz

Funding Information:
Open access funding enabled and organized by Projekt DEAL.

Publisher Copyright:
© 2023 The Authors. International Economic Review published by Wiley Periodicals LLC on behalf of the Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.