August 2012

Financing Constraints, Firm Dynamics, and International Trade

Till Gross and Stephane Verani

Note: A revised version of this paper is posted as FEDS Working Paper #2013-02.


There is growing empirical support for the conjecture that access to credit is an important determinant of firms' export decisions. We study a multi-country general equilibrium economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial constraints arise in consequence of financials contracts that are optimal given information asymmetry. Consistent with empirical regularities, as firm age and size increase, the model implies decreasing mean and variance of firm growth and increasing firm survival. Exporters are larger, their survival in international markets increases with the time spent exporting, and the sales of older exporters are larger and more stable.

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Keywords: Private information, long-term lending contracts, exporter dynamics, international trade, financial intermediation

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Last Update: July 10, 2020