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Full-Text Articles in Social and Behavioral Sciences
Financial Frictions And International Trade, Ruanjai Suwantaradon
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 …
A Welfare Analysis Of Capital Account Liberalization, Jürgen Von Hagen, Haiping Zhang
A Welfare Analysis Of Capital Account Liberalization, Jürgen Von Hagen, Haiping Zhang
Research Collection School Of Economics
We develop a model of a small open economy with credit market frictions to analyze the consequences of capital account liberalization. We show that financial opening facilitates the inflows of cheap foreign funds and improves production efficiency. Reforms increasing labor market exibility can further improve such efficiency gains. However, capital account liberalization also has important distributional consequences. Specifically, it may be impossible to use public transfers to fully compensate the loss of those negatively affected by capital account liberalization. This explains why financial opening often meets fierce opposition even though it leads to efficiency gains for the economy as a …
Financial Frictions, Capital Reallocation, And Aggregate Fluctuations, Jürgen Von Hagen, Haiping Zhang
Financial Frictions, Capital Reallocation, And Aggregate Fluctuations, Jürgen Von Hagen, Haiping Zhang
Research Collection School Of Economics
We address an important business cycle fact, i.e., the amplified and hump-shaped responses of output to productivity shocks, in a dynamic general equilibrium model with financial frictions. Models with financial frictions in the current literature have either the amplification mechanism or the propagation mechanism. Our model shows that the dynamic interaction of borrowing constraints, endogenous capital accumulation, and capital reallocation among agents with different productivity constitutes a mechanism through which the effects of productivity shock on aggregate output are amplified and propagated, more in line with the empirical evidence than other related models in the literature.