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Credit constraints and spillover effects of financial market liberalization: Case of Colombia

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  • Knudsen, Arielle
  • Lopatin, Nikita

Abstract

We identify an effect of deep trade agreements that is previously not studied in the literature. The 2012 US-Colombia Trade Promotion Agreement caused Colombia to liberalize its financial markets, providing greater access to foreign financial services. We show that this financial market liberalization effectively reduced credit constraints faced by Colombian firms. We merge balance sheet data with export transaction data, allowing us to analyze changes in export decisions of more than 7000 firms over the span of 10 years. As a result of the reforms, in sectors that rely more on external financing, exports have increased to the rest of the world. That is, the trade-diversion effects of the agreement were reduced due to improved access to external financing by foreign capital. Thus, we demonstrate a new channel for potential welfare gains from trade agreements.

Suggested Citation

  • Knudsen, Arielle & Lopatin, Nikita, 2023. "Credit constraints and spillover effects of financial market liberalization: Case of Colombia," The Quarterly Review of Economics and Finance, Elsevier, vol. 87(C), pages 132-141.
    • Handle: RePEc:eee:quaeco:v:87:y:2023:i:c:p:132-141
    DOI: 10.1016/j.qref.2022.09.007
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    References listed on IDEAS

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    1. El-Sahli, Zouheir & Maczulskij, Terhi & Nilsson Hakkala, Katariina, 2023. "Firm-Level Consequences of Export Demand Shocks: Swedish and Finnish Exporters," ETLA Working Papers 108, The Research Institute of the Finnish Economy.
    2. Zhu, Huaijia & Chang, Shiwei & Chen, Bo & Zhu, Huaiqi, 2024. "How does military-civilian integration development influence corporate financial constraints in China? Evidence based on quasi-natural experiments," Economic Analysis and Policy, Elsevier, vol. 81(C), pages 1273-1289.

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    More about this item

    Keywords

    Credit constraints; Trade agreements; Welfare channels; Firm-level exports; Financial market liberalization;
    All these keywords.

    JEL classification:

    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G28 - Financial Economics - - Financial Institutions and Services - - - Government Policy and Regulation
    • G32 - Financial Economics - - Corporate Finance and Governance - - - Financing Policy; Financial Risk and Risk Management; Capital and Ownership Structure; Value of Firms; Goodwill

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