Financing Constraints, Firm Dynamics, and International Trade

52 Pages Posted: 9 Sep 2012 Last revised: 5 May 2013

See all articles by Till Gross

Till Gross

Carleton University

Stephane Verani

Board of Governors of the Federal Reserve System

Multiple version iconThere are 2 versions of this paper

Date Written: May 3, 2013


This paper studies the impact of financial constraints on exporter dynamics, and the role of financial intermediation in international trade. We propose a multi-country general equilibrium model economy in which entrepreneurs and lenders engage in long-term credit relationships. Financial markets are endogenously incomplete because of private information, and financial constraints arise as a consequence of optimal financial contracts. In equilibrium, competitive financial intermediaries actively channel individuals' short-term deposits to fund a diversified portfolio of long-term risky firms. Young and small firms operate below their efficient level, and their financial constraint is relaxed as the entrepreneur's claim to future cash-flows increases. Consistent with empirical regularities, there is a substantial year-to-year transition in and out of export markets for smaller firms, and new exporters account only for a small share of total exports. Established exporters are less likely to exit export markets, and tend to experience a more stable growth.

Keywords: private information, long-term financial contracts, exporter dynamics, international trade, financial intermediation

JEL Classification: F10, D82, L14

Suggested Citation

Gross, Till and Verani, Stephane, Financing Constraints, Firm Dynamics, and International Trade (May 3, 2013). Available at SSRN: or

Till Gross

Carleton University ( email )

1125 colonel By Drive
Ottawa, Ontario K1S 5B6

Stephane Verani (Contact Author)

Board of Governors of the Federal Reserve System ( email )

20th Street and Constitution Avenue NW
Washington, DC 20551
United States


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