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Financial Frictions And International Trade, Ruanjai Suwantaradon

Research Collection School Of Economics

This paper studies the effects of financial market imperfections on a firm’s operating and exporting decisions. I introduce financial frictions into a trade model with heterogeneous firms along the line of Melitz (2003). With the presence of financial constraints, even among a group of firms with the same productivity level, firms that are more financially constrained operate on a less efficient scale, and as a result, may no longer find operating and/or exporting profitable. In addition, financial frictions may create a distortion compared to the Melitz (2003) world since operation and export participation may be undertaken by those with better …