November 2012

Financing Constraints, Firm Dynamics, and International Trade

Till Gross and Stephane Verani

Note: This paper is a revised version of FEDS Working Paper #2012-68.


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 as a consequence of financial contracts that are optimal under private information. Consistent with empirical regularities, the model implies that older and larger firms have lower average and more stable growth rates, and are more likely to survive. 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 financial contracts, exporter dynamics, international trade, financial intermediation

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Last Update: June 26, 2020