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Financial constraints and international trade patterns

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  • Goksel, Turkmen

Abstract

Growing empirical literature shows that financial constraints reduce the chance of exporting, suggesting that financial constraints are an important determinant of international trade patterns. In this aspect, I develop a model of international trade based on new trade theory with financial constraints and non-homothetic preferences. With these two modified assumptions, the main findings are i) financial constraints act as trade barriers, ii) the largest amount of trade is between countries that have healthier financial systems in terms of access to loans and iii) financial constraints can cause one way or zero trade. As a result, this paper provides a single framework able to account for all possible patterns (two-way, one-way, and no trade) within the same industry. All these findings have important policy implications for countries suffering from relatively poor financial systems.

Suggested Citation

  • Goksel, Turkmen, 2012. "Financial constraints and international trade patterns," Economic Modelling, Elsevier, vol. 29(6), pages 2222-2225.
    • Handle: RePEc:eee:ecmode:v:29:y:2012:i:6:p:2222-2225
    DOI: 10.1016/j.econmod.2012.06.040
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    References listed on IDEAS

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    Cited by:

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    2. Thang, Doan Ngoc & Ha, Le Thanh, 2022. "Trade credit and global value chain: Evidence from cross-country firm-level data," International Economics, Elsevier, vol. 171(C), pages 110-129.
    3. Chen, Meng-Wei & Lu, Cuicui & Tian, Yuan, 2021. "Export price and quality adjustment: The role of financial stress and exchange rate," Economic Modelling, Elsevier, vol. 96(C), pages 336-345.
    4. Memanova, Tamilyam & Mylonidis, Nikolaos, 2020. "Exploring the nexus between bank market power and exports," Economic Modelling, Elsevier, vol. 84(C), pages 222-233.
    5. Kais Mtar & Walid Belazreg, 2023. "On the nexus of innovation, trade openness, financial development and economic growth in European countries: New perspective from a GMM panel VAR approach," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 28(1), pages 766-791, January.
    6. Soo, Kwok Tong, 2017. "Indivisibilities in the Ricardian model of trade," Economic Modelling, Elsevier, vol. 63(C), pages 311-317.
    7. Brian Tavonga Mazorodze, 2024. "Access to finance and intra-Africa trade efficiency," Journal of Shipping and Trade, Springer, vol. 9(1), pages 1-14, December.
    8. S K Gnangnon, 2023. "Effect of Aid for Trade on Financial Development," Economic Issues Journal Articles, Economic Issues, vol. 28(2), pages 1-38, September.
    9. Kosaka, Michiru Sakane, 2014. "Financial constraints, firm entry, and exchange rate pass-through," Economics Letters, Elsevier, vol. 125(1), pages 143-147.
    10. Bilas Vlatka & Bosnjak Mile & Novak Ivan, 2017. "Examining the Relationship between Financial Development and International Trade in Croatia," South East European Journal of Economics and Business, Sciendo, vol. 12(1), pages 80-88, April.

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