[go: up one dir, main page]
IDEAS home Printed from https://ideas.repec.org/p/kgu/wpaper/256.html
   My bibliography  Save this paper

A heterogeneous-firm model of trade and growth with country-specific credit constraints

Author

Listed:
  • Ryoji Ohdoi

    (School of Economics, Kwansei Gakuin University)

  • Kazuo Mino

    (Kyoto Institute of Economic Research, Kyoto University)

  • Yunfang Hu

    (Graduate School of Economics, Kobe University)

Abstract
This study constructs a two-country endogenous growth model with heterogeneous firms and asymmetric countries, where the asymmetry lies in the degree of financial frictions. The tradable intermediate goods sector consists of heterogeneous firms and requires specific goods for entry. These goods are produced by heterogeneous entrepreneurs facing credit constraints due to financial frictions. Using this framework, we derive the following results analytically. First, a permanent credit crunch in one country facilitates the exit of intermediate goods firms in that country; meanwhile, it decreases the profitability of exports of the other country’s intermediate goods firms, causing exporters to switch to selling their goods domestically. Second, under no international lending and borrowing, the credit crunch reduces the growth rates of both countries not only in the long run but also during the transition to a new balanced growth path. We also compare the long-run effects under such a financial autarky and financial integration.

Suggested Citation

  • Ryoji Ohdoi & Kazuo Mino & Yunfang Hu, 2023. "A heterogeneous-firm model of trade and growth with country-specific credit constraints," Discussion Paper Series 256, School of Economics, Kwansei Gakuin University.
    • Handle: RePEc:kgu:wpaper:256
    as

    Download full text from publisher

    File URL: http://192.218.163.163/RePEc/pdf/kgdp256.pdf
    File Function: First version, 2023
    Download Restriction: no
    ---><---

    Other versions of this item:

    References listed on IDEAS

    as
    1. Francisco J. Buera & Juan Pablo Nicolini, 2020. "Liquidity Traps and Monetary Policy: Managing a Credit Crunch," American Economic Journal: Macroeconomics, American Economic Association, vol. 12(3), pages 110-138, July.
    2. Baldwin, Richard E. & Robert-Nicoud, Frederic, 2008. "Trade and growth with heterogeneous firms," Journal of International Economics, Elsevier, vol. 74(1), pages 21-34, January.
    3. Balistreri, Edward J. & Hillberry, Russell H. & Rutherford, Thomas F., 2011. "Structural estimation and solution of international trade models with heterogeneous firms," Journal of International Economics, Elsevier, vol. 83(2), pages 95-108, March.
    4. Fabio Ghironi & Marc J. Melitz, 2005. "International Trade and Macroeconomic Dynamics with Heterogeneous Firms," The Quarterly Journal of Economics, President and Fellows of Harvard College, vol. 120(3), pages 865-915.
    5. Michael B. Devereux & James Yetman, 2010. "Leverage Constraints and the International Transmission of Shocks," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 42(s1), pages 71-105, September.
    6. Thomas Chaney, 2016. "Liquidity Constrained Exporters," SciencePo Working papers hal-03389283, HAL.
    7. David Kohn & Fernando Leibovici & Michal Szkup, 2016. "Financial Frictions And New Exporter Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(2), pages 453-486, May.
    8. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2020. "Financial frictions and export dynamics in large devaluations," Journal of International Economics, Elsevier, vol. 122(C).
    9. Francisco L. Rivera-Batiz & Luis A. Rivera-Batiz, 2018. "Economic Integration and Endogenous Growth," World Scientific Book Chapters, in: Francisco L Rivera-Batiz & Luis A Rivera-Batiz (ed.), International Trade, Capital Flows and Economic Development, chapter 1, pages 3-32, World Scientific Publishing Co. Pte. Ltd..
    10. Naito, Takumi, 2017. "Growth and welfare effects of unilateral trade liberalization with heterogeneous firms and asymmetric countries," Journal of International Economics, Elsevier, vol. 109(C), pages 167-173.
    11. Andrew B. Bernard & Jonathan Eaton & J. Bradford Jensen & Samuel Kortum, 2003. "Plants and Productivity in International Trade," American Economic Review, American Economic Association, vol. 93(4), pages 1268-1290, September.
    12. Kiminori Matsuyama, 2005. "Credit Market Imperfections and Patterns of International Trade and Capital Flows," Journal of the European Economic Association, MIT Press, vol. 3(2-3), pages 714-723, 04/05.
    13. Takumi Naito, 2021. "Can The Optimal Tariff Be Zero For A Growing Large Country?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1237-1280, August.
    14. Kollmann, Robert & Enders, Zeno & Müller, Gernot J., 2011. "Global banking and international business cycles," European Economic Review, Elsevier, vol. 55(3), pages 407-426, April.
    15. Jonathan Eaton & Samuel Kortum & Brent Neiman & John Romalis, 2016. "Trade and the Global Recession," American Economic Review, American Economic Association, vol. 106(11), pages 3401-3438, November.
    16. David Kohn & Fernando Leibovici & Michal Szkup, 2016. "Financial Frictions And New Exporter Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57, pages 453-486, May.
    17. Jonathan Eaton & Samuel Kortum, 2002. "Technology, Geography, and Trade," Econometrica, Econometric Society, vol. 70(5), pages 1741-1779, September.
    18. Chaney, Thomas, 2016. "Liquidity constrained exporters," Journal of Economic Dynamics and Control, Elsevier, vol. 72(C), pages 141-154.
    19. Oleg Itskhoki & Benjamin Moll, 2019. "Optimal Development Policies With Financial Frictions," Econometrica, Econometric Society, vol. 87(1), pages 139-173, January.
    20. Ourens, Guzmán, 2016. "Trade and growth with heterogeneous firms revisited," Journal of International Economics, Elsevier, vol. 100(C), pages 194-202.
    21. Benjamin Moll, 2014. "Productivity Losses from Financial Frictions: Can Self-Financing Undo Capital Misallocation?," American Economic Review, American Economic Association, vol. 104(10), pages 3186-3221, October.
    22. Robert C. Feenstra & Zhiyuan Li & Miaojie Yu, 2014. "Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 729-744, October.
    23. Francisco J. Buera & Juan Pablo Nicolini, 2017. "Liquidity Traps and Monetary Policy: Managing a Credit Crunch: Online Appendix," Staff Report 541, Federal Reserve Bank of Minneapolis.
    24. Devereux, Michael B. & Sutherland, Alan, 2011. "Evaluating international financial integration under leverage constraints," European Economic Review, Elsevier, vol. 55(3), pages 427-442, April.
    25. repec:hal:spmain:info:hdl:2441/5g3sadr9h8gbri8hrtq0h6au2 is not listed on IDEAS
    26. David Kohn & Fernando Leibovici & Michal Szkup, 2021. "Financial Frictions and International Trade," Documentos de Trabajo 563, Instituto de Economia. Pontificia Universidad Católica de Chile..
    27. 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.
    28. Luca Dedola & Giovanni Lombardo, 2012. "Financial frictions, financial integration and the international propagation of shocks [Optimal monetary policy under commitment with a zero bound on nominal interest rates]," Economic Policy, CEPR, CESifo, Sciences Po;CES;MSH, vol. 27(70), pages 319-359.
    29. Brooks, Wyatt & Dovis, Alessandro, 2020. "Credit market frictions and trade liberalizations," Journal of Monetary Economics, Elsevier, vol. 111(C), pages 32-47.
    30. Rudolfs Bems & Robert C. Johnson & Kei-Mu Yi, 2013. "The Great Trade Collapse," Annual Review of Economics, Annual Reviews, vol. 5(1), pages 375-400, May.
    Full references (including those not matched with items 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. Kohn, David & Leibovici, Fernando & Szkup, Michal, 2020. "Financial frictions and export dynamics in large devaluations," Journal of International Economics, Elsevier, vol. 122(C).
    2. David Kohn & Fernando Leibovici & Michal Szkup, 2023. "No Credit, No Gain: Trade Liberalization Dynamics, Production Inputs, And Financial Development," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 64(2), pages 809-836, May.
    3. Takumi Naito, 2021. "Can The Optimal Tariff Be Zero For A Growing Large Country?," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 62(3), pages 1237-1280, August.
    4. Till Gross & Stephane Verani, 2012. "Financing Constraints, Firm Dynamics, and International Trade," 2012 Meeting Papers 1035, Society for Economic Dynamics.
    5. Stijn Claessens & M Ayhan Kose, 2018. "Frontiers of macrofinancial linkages," BIS Papers, Bank for International Settlements, number 95.
    6. Bergin, Paul R. & Feng, Ling & Lin, Ching-Yi, 2021. "Trade and firm financing," Journal of International Economics, Elsevier, vol. 131(C).
    7. Julian di Giovanni & Manuel García-Santana & Priit Jeenas & Enrique Moral-Benitoz & Josep Pijoan-Mas, 2022. "Government Procurement and Access to Credit: Firm Dynamics and Aggregate Implications," Working Papers 2233, Banco de España.
    8. Nishiyama, Hiroyuki & Gintani, Yasuhiro & Tsuboi, Mizuki, 2024. "The impact of trade on growth and welfare with heterogeneous firms and rent-sharing," International Review of Economics & Finance, Elsevier, vol. 89(PB), pages 731-742.
    9. Naito, Takumi, 2019. "A lab-equipment model of growth with heterogeneous firms and asymmetric countries," Economics Letters, Elsevier, vol. 181(C), pages 33-36.
    10. Reto Foellmi & Manuel Oechslin, 2020. "Harmful Procompetitive Effects of Trade in Presence of Credit Market Frictions," Journal of Money, Credit and Banking, Blackwell Publishing, vol. 52(6), pages 1493-1525, September.
    11. Ohdoi, Ryoji, 2020. "Trade, Growth, and the International Transmission of Financial Shocks," MPRA Paper 100756, University Library of Munich, Germany.
    12. Pengfei Wang & Danyang Xie, 2018. "Trade, Sectorial Reallocation, and Growth," Annals of Economics and Finance, Society for AEF, vol. 19(1), pages 49-74, May.
    13. Julian di Giovanni & Manuel García-Santana & Priit Jeenas & Enrique Moral-Benito & Josep Pijoan-Mas, 2022. "Buy Big or Buy Small? Procurement Policies, Firms' Financing, and the Macroeconomy," Working Papers 1321, Barcelona School of Economics.
    14. Yang Jiao & Yi Wen, 2012. "Capital, finance, and trade collapse," Working Papers 2012-003, Federal Reserve Bank of St. Louis.
    15. 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).
    16. David Kohn & Fernando Leibovici & Michal Szkup, 2016. "Financial Frictions And New Exporter Dynamics," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 57(2), pages 453-486, May.
    17. Baldwin, Richard E. & Robert-Nicoud, Frederic, 2008. "Trade and growth with heterogeneous firms," Journal of International Economics, Elsevier, vol. 74(1), pages 21-34, January.
    18. Andreasen, Eugenia & Bauducco, Sofía & Dardati, Evangelina, 2017. "Capital Controls and Firm Performance: The Effects of the Chilean Encaje," Research Department working papers 1153, CAF Development Bank Of Latinamerica.
    19. Naito, Takumi, 2012. "A Ricardian model of trade and growth with endogenous trade status," Journal of International Economics, Elsevier, vol. 87(1), pages 80-88.
    20. Fan, Haichao & Lai, Edwin L.-C. & Li, Yao Amber, 2015. "Credit constraints, quality, and export prices: Theory and evidence from China," Journal of Comparative Economics, Elsevier, vol. 43(2), pages 390-416.

    More about this item

    Keywords

    Banks; Endogenous growth; Heterogeneous firms; Asymmetric countries; Financial frictions; Country-specific credit crunch;
    All these keywords.

    JEL classification:

    • F12 - International Economics - - Trade - - - Models of Trade with Imperfect Competition and Scale Economies; Fragmentation
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
    • O41 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - One, Two, and Multisector Growth Models

    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:kgu:wpaper:256. 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: Toshihiro Okada (email available below). General contact details of provider: https://edirc.repec.org/data/dekgujp.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.