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How Local Financial Market Imperfection and Exchange Rates Relate to Decisions to Export

by Dingming Liu, Pu Chen*, Chunyang Wang

ARTICLE | Annals of Economics and Finance | No. 2, Vol. 16, 2015


Theoretic and empirical studies argue that the differences in financial mar- ket development contribute to varying export levels in international trade. We illustrate this idea by studying a heterogeneous firm model expanded to in- clude 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 sys- tems, where producers typically have to rely on internally generated capital, changes in the interest rate do not generate a significant effect on export levels.
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