Credit frictions, selection into external finance and gains from trade
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In: Canadian Journal of Economics, Vol. 54, No. 3, 01.11.2021, p. 1206-1251.
Research output: Journal contributions › Journal articles › Research › peer-review
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TY - JOUR
T1 - Credit frictions, selection into external finance and gains from trade
AU - Unger, Florian
N1 - Publisher Copyright: © 2021 The Authors. Canadian Journal of Economics/Revue canadienne d'économique published by Wiley Periodicals LLC on behalf of Canadian Economics Association.
PY - 2021/11/1
Y1 - 2021/11/1
N2 - This paper analyzes the effects of credit frictions in a trade model where heterogeneous firms select both into exporting and into two types of external finance. While small producers face stronger credit frictions and rely on bank finance, large firms have access to cheaper bond finance. The analysis shows that a bank credit shock leads to an increase in the share of firms that use bond finance. This selection effect is used to explain the observed decrease in bank finance relative to bond finance during the global financial crisis of 2007–2009. A calibration of the model to the crisis period documents that endogenous selection into external finance reduces the negative implications of credit frictions on product variety, exports and gains from trade.
AB - This paper analyzes the effects of credit frictions in a trade model where heterogeneous firms select both into exporting and into two types of external finance. While small producers face stronger credit frictions and rely on bank finance, large firms have access to cheaper bond finance. The analysis shows that a bank credit shock leads to an increase in the share of firms that use bond finance. This selection effect is used to explain the observed decrease in bank finance relative to bond finance during the global financial crisis of 2007–2009. A calibration of the model to the crisis period documents that endogenous selection into external finance reduces the negative implications of credit frictions on product variety, exports and gains from trade.
KW - Economics
UR - http://www.scopus.com/inward/record.url?scp=85116897615&partnerID=8YFLogxK
U2 - 10.1111/caje.12529
DO - 10.1111/caje.12529
M3 - Journal articles
AN - SCOPUS:85116897615
VL - 54
SP - 1206
EP - 1251
JO - Canadian Journal of Economics
JF - Canadian Journal of Economics
SN - 0008-4085
IS - 3
ER -