{"id":1424,"date":"2023-02-13T16:19:17","date_gmt":"2023-02-13T16:19:17","guid":{"rendered":"https:\/\/www.fiw.ac.at\/publications\/capital-market-imperfections-and-trade-liberalization-in-general-equilibrium\/"},"modified":"2023-02-13T16:19:17","modified_gmt":"2023-02-13T16:19:17","slug":"capital-market-imperfections-and-trade-liberalization-in-general-equilibrium","status":"publish","type":"publication","link":"https:\/\/www.fiw.ac.at\/en\/publications\/capital-market-imperfections-and-trade-liberalization-in-general-equilibrium\/","title":{"rendered":"Capital Market Imperfections and Trade Liberalization in General Equilibrium"},"content":{"rendered":"\nThis paper develops a new international trade model with capital market imperfections and endogenous borrowing costs in general equilibrium. A key element of our model is that firm heterogeneity arises from the interaction of credit constraints at the firm-level with financial frictions at the country-level. Producers differ in pledgeability of sales which results in firm heterogeneity, if financial institutions are imperfect. We show that endogenous adjustments of capital costs represent a new channel that reduces common gains from globalization. Trade liberalization increases the borrowing rate, leads to a reallocation of market shares towards unconstrained producers and a larger fraction of credit-rationed firms. This increases the within-industry variance of, sales and reduces welfare gains as consumers dislike price heterogeneity. Our theory is consistent with new empirical patterns from World Bank firm-level data. We highlight that credit frictions are positively related to the degree of product market competition and to the variance of sales across firms.\n\n","protected":false},"featured_media":0,"menu_order":0,"template":"","jelcode":[60,180,556,212],"keyword":[557,558,19,559,560],"class_list":["post-1424","publication","type-publication","status-publish","hentry","jelcode-f10","jelcode-f36","jelcode-f61","jelcode-l11","keyword-credit-constraints","keyword-general-equilibrium","keyword-globalization","keyword-imperfect-capital-markets","keyword-welfare"],"acf":{"year":2016,"month":2,"day":"","volume":"","number":"162","pages":47,"reviewed":"0","citeid":"FIW_WP_162","fiwseries":"FIW Working Papers","event":null},"yoast_head":"<!-- This site is optimized with the Yoast SEO plugin v23.4 - https:\/\/yoast.com\/wordpress\/plugins\/seo\/ -->\n<title>Capital Market Imperfections and Trade Liberalization in General Equilibrium - FIW<\/title>\n<meta name=\"robots\" content=\"index, follow, max-snippet:-1, max-image-preview:large, max-video-preview:-1\" \/>\n<link rel=\"canonical\" href=\"https:\/\/www.fiw.ac.at\/en\/publications\/capital-market-imperfections-and-trade-liberalization-in-general-equilibrium\/\" \/>\n<meta property=\"og:locale\" content=\"en_US\" \/>\n<meta property=\"og:type\" content=\"article\" \/>\n<meta property=\"og:title\" content=\"Capital Market Imperfections and Trade Liberalization in General Equilibrium - FIW\" \/>\n<meta property=\"og:description\" content=\"This paper develops a new international trade model with capital market imperfections and endogenous borrowing costs in general equilibrium. A key element of our model is that firm heterogeneity arises from the interaction of credit constraints at the firm-level with financial frictions at the country-level. 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