Financial Frictions and New Exporter Dynamics
(with David Kohn and Michal Szkup)
International Economic Review , forthcoming.
Abstract: This paper studies the role of financial frictions as a barrier to international trade. We study new exporter dynamics to identify how these frictions affect export decisions. We introduce a borrowing constraint and working capital requirements into a standard model of international trade, with exports more working capital intensive than domestic sales. Our model can quantitatively account for new exporter dynamics, in contrast to a model with sunk export entry costs. We provide additional evidence in support of our mechanism. We find that financial frictions reduce the impact of a trade liberalization, suggesting that they constitute an important trade barrier.
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