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Firm Heterogeneity under Financial Imperfection: Impacts of Trade and Capital Movement

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  • Taiji Furusawa

    (Harvard University, Hitotsubashi University)

  • Noriyuki Yanagawa

    (Faculty of Economics, University of Tokyo)

Abstract

The paper examines the impacts of trade and capital movement between North and South, which differ in the quality of financial institution, on the productivity distribution and other characteristics of a financially-dependent industry. We find that financial imperfection causes firm heterogeneity and that trade and capital movement are complements in the sense that trade in goods affects the productivity distribution only when accompanied by international capital movement (trade induces capital outflow from South when capital has been internationally mobile). We also find that an international difference in financial development induces reciprocal foreign direct investment.

Suggested Citation

  • Taiji Furusawa & Noriyuki Yanagawa, 2010. "Firm Heterogeneity under Financial Imperfection: Impacts of Trade and Capital Movement," CARF F-Series CARF-F-233, Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo.
    • Handle: RePEc:cfi:fseres:cf233
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    Cited by:

    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.

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