Workshop: Financial constraints, Trade and Productivity

11/10/2013 - 17:00 to 20:00

Aula Magna Ex-Facoltà di Economia

Via Sant'Ignazio, 74




ore 15.00

Reto Foellmi, St. Gallen University
Globalization and Productivity in the Developing World 
We explore the impact of international trade in a monopolistically competitive economy that encompasses technology choice and an endogenous distribution of mark-ups due to credit frictions. We show that in such an environment a gradual opening of trade may -- but not necessarily must -- have a negative impact on productivity and overall output. The reason is that the pro-competitive effects of trade reduce mark-ups and hence make access to credit more difficult for smaller firms (an implication we substantiate using firm-level data from Latin America). As a result, smaller firms -- while not driven out of the market -- may be forced to switch to less productive technologies. Our framework matches several salient patterns in the empirical literature on the impact of trade in developing countries.
ore 16.30
Tobias Seidel, Mercator School of Management, University of Duisburg
Regional implications of financial market development – Credit rationing, trade and location
We develop a heterogeneous-firms model with trade in goods, labor mobility and credit constraints due to moral hazard. Mitigating financial frictions reduces the incentive of high-skilled workers to migrate to one region such that an unequal distribution of industrial activity becomes less likely. Hence, financial market development has opposite regional implications as trade liberalization. While the former leads to more dispersion of economic activity across space, the latter tends to drive clustering. We provide empirical evidence for this hypothesis by combining industry-region variation in the spatial concentration of economic activity with information on the access to credit and the dependence on external finance. Our empirical estimates for 20 European countries and eleven industries confirm that financial market development mitigates the clustering of economic activity.