Article | Review of Corporate Finance Studies | March 2013

Financial Development, Fixed Costs and International Trade

Abstract

Exporting firms face significant up-front costs in product design, marketing, and distribution, which likely would be difficult to finance externally. We argue that a developed financial system can facilitate exports, and we test three implications. First, a more developed financial system is associated with higher exports. Second, the impact of financial development is higher where fixed costs are large due to either product characteristics or the distance between exporter and importer. Finally, we find that in countries with well-developed finance, total exports and the allocation of exports across importers are more sensitive to exchange rates than in countries with lower financial development.

Keywords: Trade; Finance;

Citation:

Becker, Bo, David Greenberg, and Jinzhu Chen. "Financial Development, Fixed Costs and International Trade." Review of Corporate Finance Studies 2, no. 1 (March 2013): 1–28.