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Financial Development & Commercial Advantage

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  • Rafael Cezar

    (Banque de France, 37 rue du Louvre 75002 Paris)

Abstract

The article seeks to clarify the relationship between financial development and the marginal variation in the proportion of exporting firms (extensive margin) and the volume exported by each economic sector (intensive margin). We develop a theoretical model with two countries facing different levels of financial restrictions and input costs, several sectors differentiated by their dependence on external finance and heterogeneous firms producing with a combination of inputs. The model shows that financially developed countries experience a commercial advantage in financially dependent sectors and countries with more competitive cost structures experience an advantage and specialize in low financially dependent sectors. This relationship is true even within the manufacturing sectors. The model also indicates that financial development only affects trade in financially constrained sectors.

Suggested Citation

  • Rafael Cezar, 2017. "Financial Development & Commercial Advantage," Global Economy Journal (GEJ), World Scientific Publishing Co. Pte. Ltd., vol. 17(1), pages 1-10, March.
    • Handle: RePEc:wsi:gejxxx:v:17:y:2017:i:01:n:gej-2016-0027
    DOI: 10.1515/GEJ-2016-0027
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    References listed on IDEAS

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    1. Mr. Jiandong Ju & Shang-Jin Wei, 2005. "Endowment Versus Finance: A Wooden Barrel Theory of International Trade," IMF Working Papers 2005/123, International Monetary Fund.
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    7. Beck, Thorsten, 2002. "Financial development and international trade: Is there a link?," Journal of International Economics, Elsevier, vol. 57(1), pages 107-131, June.
    8. Rafael Cezar, 2014. "The heterogeneous effect of finance on international trade," Applied Economics, Taylor & Francis Journals, vol. 46(24), pages 2903-2919, August.
    9. Dornbusch, Rudiger & Fischer, Stanley & Samuelson, Paul A, 1977. "Comparative Advantage, Trade, and Payments in a Ricardian Model with a Continuum of Goods," American Economic Review, American Economic Association, vol. 67(5), pages 823-839, December.
    10. Marc J. Melitz, 2003. "The Impact of Trade on Intra-Industry Reallocations and Aggregate Industry Productivity," Econometrica, Econometric Society, vol. 71(6), pages 1695-1725, November.
    11. Hur, Jung & Raj, Manoj & Riyanto, Yohanes E., 2006. "Finance and trade: A cross-country empirical analysis on the impact of financial development and asset tangibility on international trade," World Development, Elsevier, vol. 34(10), pages 1728-1741, October.
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    More about this item

    Keywords

    international trade; specialization; commercial advantage; financial development; heterogeneous firms; theoretical model;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

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