How Local Financial Market Conditions, Interest Rates, and Productivity Relate to Decisions to Export

by Dingming Liu, Pu Chen*, Chunyang Wang

ARTICLE | Annals of Economics and Finance | Vol. 16, 2015

Abstract

Theoretic and empirical studies argue that the differences in financial market development contribute to varying export levels in international trade. We illustrate this idea by studying a heterogeneous firm model expanded to include a borrowing constraint, and we find that in a developed financial system a change in interest rate exerts a significant effect on exports, due to the high dependence on external financing. Conversely, in less developed financial systems, where producers typically have to rely on internally generated capital,changes in the interest rate do not generate a ignificant effect on export levels