Credit Constraints, Equity Market Liberalizations and International Trade

38 Pages Posted: 23 Mar 2008

See all articles by Kalina Manova

Kalina Manova

University College London - Department of Economics


This paper provides evidence that credit constraints are an important determinant of international trade flows. I exploit shocks to the availability of external finance and examine the impact of equity market liberalizations on the export behavior of 91 countries in the 1980-1997 period. I show that liberalizations increase exports disproportionately more in financially vulnerable sectors that require more outside finance or employ fewer collateralizable assets. This result is not driven by cross-country differences in factor endowments and is independent of simultaneous trade policy reforms. Moreover, it obtains with equal strength in the full panel of countries as well as in both panel and event-study analyses of countries which removed capital controls during the sample period. Finally, the effects of liberalizations are more pronounced in economies with initially less active stock markets, indicating that foreign equity flows may substitute for an underdeveloped domestic financial system. Similarly, opening equity markets has a greater impact in the presence of higher trade costs caused by restrictive trade policies.

Keywords: international trade, credit constraints, equity market liberalization

JEL Classification: F10, F14, F36, G20, G28, G32

Suggested Citation

Manova, Kalina B., Credit Constraints, Equity Market Liberalizations and International Trade. Journal of International Economics, Forthcoming. Available at SSRN:

Kalina B. Manova (Contact Author)

University College London - Department of Economics ( email )

Drayton House, 30 Gordon Street
30 Gordon Street
London, WC1H 0AX
United Kingdom

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