IDEAS home Printed from https://ideas.repec.org/p/bdi/wptemi/td_940_13.html
   My bibliography  Save this paper

Heterogenous firms and credit frictions: a general equilibrium analysis of market entry decisions

Author

Listed:
  • Sara Formai

    (Bank of Italy)

Abstract

This paper develops a general equilibrium model of international trade with heterogeneous firms and imperfect credit markets. To finance the costs for product innovation and domestic and foreign market entry, firms must raise external capital. The model underscores the importance of considering a general equilibrium setting in order to characterize fully the misallocations of resources that stem from the existence of credit frictions. These have important implications for firms' entry decisions in the different markets and for the welfare effects of imperfect financial institutions. Allowing for liquidity-constrained firms and imperfect credit markets alters, and in some cases reverses, some of the main results from the literature on heterogeneous firms. In particular, the model predicts that trade liberalization does not necessarily lead to an increase in average productivity and consumers' welfare.

Suggested Citation

  • Sara Formai, 2013. "Heterogenous firms and credit frictions: a general equilibrium analysis of market entry decisions," Temi di discussione (Economic working papers) 940, Bank of Italy, Economic Research and International Relations Area.
    • Handle: RePEc:bdi:wptemi:td_940_13
    as

    Download full text from publisher

    File URL: http://www.bancaditalia.it/pubblicazioni/temi-discussione/2013/2013-0940/en_tema_940.pdf
    Download Restriction: no
    ---><---

    References listed on IDEAS

    as
    1. Del Gatto, Massimo & Mion, Giordano & Ottaviano, Gianmarco I.P., 2006. "Trade Integration, Firm Selection and the Costs of Non-Europe," Conference papers 331548, Purdue University, Center for Global Trade Analysis, Global Trade Analysis Project.
    2. Flora Bellone & Patrick Musso & Lionel Nesta & Stefano Schiavo, 2010. "Financial Constraints and Firm Export Behaviour," The World Economy, Wiley Blackwell, vol. 33(3), pages 347-373, March.
    3. Elhanan Helpman & Marc J. Melitz & Stephen R. Yeaple, 2004. "Export Versus FDI with Heterogeneous Firms," American Economic Review, American Economic Association, vol. 94(1), pages 300-316, March.
    4. Chang-Tai Hsieh & Peter J. Klenow, 2009. "Misallocation and Manufacturing TFP in China and India," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 124(4), pages 1403-1448.
    5. Berman, Nicolas & Héricourt, Jérôme, 2010. "Financial factors and the margins of trade: Evidence from cross-country firm-level data," Journal of Development Economics, Elsevier, vol. 93(2), pages 206-217, November.
    6. Peter Gustafsson & Paul Segerstrom, 2010. "Trade Liberalization and Productivity Growth," Review of International Economics, Wiley Blackwell, vol. 18(2), pages 207-228, May.
    7. Andrew B. Bernard & Stephen J. Redding & Peter K. Schott, 2007. "Comparative Advantage and Heterogeneous Firms," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 74(1), pages 31-66.
    8. Guglielmo Barone & Gaia Narciso, 2013. "The effect of organized crime on public funds," Temi di discussione (Economic working papers) 916, Bank of Italy, Economic Research and International Relations Area.
    9. Mas-Colell, Andreu & Whinston, Michael D. & Green, Jerry R., 1995. "Microeconomic Theory," OUP Catalogue, Oxford University Press, number 9780195102680.
    10. J. N. Bhagwati, 1969. "The Generalized Theory of Distortions and Welfare," Working papers 39, Massachusetts Institute of Technology (MIT), Department of Economics.
    11. 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.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Irlacher, Michael & Unger, Florian, 2018. "Capital market imperfections and trade liberalization in general equilibrium," Journal of Economic Behavior & Organization, Elsevier, vol. 145(C), pages 402-423.
    2. Molina, Danielken & Roa, Monica, 2014. "The Effect of Credit on the Export Performance of Colombian Exporters," MPRA Paper 56137, University Library of Munich, Germany.
    3. Molina, Danielken & Roa, Monica, 2014. "The Effect of Credit on the Export Performance of Colombian Exporters," MPRA Paper 56137, University Library of Munich, Germany.
    4. repec:wsr:wpaper:y:2016:i:162 is not listed on IDEAS

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Carsten Eckel & Florian Unger, 2023. "Credit Constraints, Endogenous Innovations, And Price Setting In International Trade," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(4), pages 1715-1747, November.
    2. Maemir, H. & Ziesemer, T., 2014. "Multinational production and trade in an endogenous growth model with heterogeneous firms," MERIT Working Papers 2014-038, United Nations University - Maastricht Economic and Social Research Institute on Innovation and Technology (MERIT).
    3. Chan, Jackie M.L., 2019. "Financial frictions and trade intermediation: Theory and evidence," European Economic Review, Elsevier, vol. 119(C), pages 567-593.
    4. Chen, Minjia & Guariglia, Alessandra, 2013. "Internal financial constraints and firm productivity in China: Do liquidity and export behavior make a difference?," Journal of Comparative Economics, Elsevier, vol. 41(4), pages 1123-1140.
    5. Johannes Pöschl & Robert Stehrer & Roman Stöllinger, 2010. "Austrian Exporters: A Firm-Level Analysis," wiiw Working Papers 67, The Vienna Institute for International Economic Studies, wiiw.
    6. Elhanan Helpman & Oleg Itskhoki & Stephen Redding, 2010. "Inequality and Unemployment in a Global Economy," Econometrica, Econometric Society, vol. 78(4), pages 1239-1283, July.
    7. Han, Wontae & Wang, Jian & Wang, Xiao, 2022. "FDI and firm productivity in host countries: The role of financial constraints," Journal of International Money and Finance, Elsevier, vol. 124(C).
    8. Guzmán Ourens, 2020. "The long-term impact of trade with firm heterogeneity," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 156(4), pages 887-919, November.
    9. Andrea Caggese & Vicente Cunat, 2013. "Financing Constraints, Firm Dynamics, Export Decisions, and Aggregate Productivity," Review of Economic Dynamics, Elsevier for the Society for Economic Dynamics, vol. 16(1), pages 177-193, January.
    10. Kristian Behrens & Giordano Mion & Yasusada Murata & Jens Südekum, 2014. "Trade, Wages, And Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 55(4), pages 1305-1348, November.
    11. repec:wsr:wpaper:y:2008:i:014 is not listed on IDEAS
    12. Defever, Fabrice & Riaño, Alejandro, 2012. "China's pure exporter subsidies," LSE Research Online Documents on Economics 48929, London School of Economics and Political Science, LSE Library.
    13. Federico J. Diez & Jesse Mora & Alan C. Spearot, 2016. "Firms in international trade," Working Papers 16-25, Federal Reserve Bank of Boston.
    14. Alessandra Bonfiglioli & Rosario Crinò & Gino Gancia, 2019. "Trade, Finance, and Endogenous Firm Heterogeneity," Journal of the European Economic Association, European Economic Association, vol. 17(1), pages 79-130.
    15. Ignat Stepanok, 2015. "Cross-border Mergers and Greenfield Foreign Direct Investment," Review of International Economics, Wiley Blackwell, vol. 23(1), pages 111-136, February.
    16. Hartmut Egger & Udo Kreickemeier, 2017. "Firm Heterogeneity and the Labor Market Effects of Trade Liberalization," World Scientific Book Chapters, in: International Trade and Labor Markets Welfare, Inequality and Unemployment, chapter 10, pages 265-306, World Scientific Publishing Co. Pte. Ltd..
    17. T.T.A. Duong & C.J.M. Kool & L. Zhang, 2019. "Borrowing constraints and export decision: the case of Vietnamese exporters," Working Papers 19-21, Utrecht School of Economics.
    18. Kenneth S. Chan & Miaojie Yu, 2016. "Special Section: China's Growing Trade and its Role to the World Economy," Pacific Economic Review, Wiley Blackwell, vol. 21(1), pages 32-34, February.
    19. Claudia Buch & Iris Kesternich & Alexander Lipponer & Monika Schnitzer, 2014. "Financial constraints and foreign direct investment: firm-level evidence," Review of World Economics (Weltwirtschaftliches Archiv), Springer;Institut für Weltwirtschaft (Kiel Institute for the World Economy), vol. 150(2), pages 393-420, May.
    20. Dinopoulos, Elias & Unel, Bulent, 2013. "A simple model of quality heterogeneity and international trade," Journal of Economic Dynamics and Control, Elsevier, vol. 37(1), pages 68-83.
    21. Federici, Daniela & Parisi, Valentino & Ferrante, Francesco, 2020. "Heterogeneous firms, corporate taxes and export behavior: A firm-level investigation for Italy," Economic Modelling, Elsevier, vol. 88(C), pages 98-112.

    More about this item

    Keywords

    consumer welfare; credit frictions; heterogeneous firms; market entry; trade liberalization;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • G20 - Financial Economics - - Financial Institutions and Services - - - General

    NEP fields

    This paper has been announced in the following NEP Reports:

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bdi:wptemi:td_940_13. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: the person in charge (email available below). General contact details of provider: https://edirc.repec.org/data/bdigvit.html .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.