Firm Heterogeneity Under Financial Imperfection: Impacts of Trade and Capital Movement

41 Pages Posted: 20 Oct 2010 Last revised: 16 May 2011

See all articles by Taiji Furusawa

Taiji Furusawa

University of Tokyo

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics

Date Written: October 19, 2010

Abstract

The paper examines the impacts of trade and capital movement between North and South, which differ in the quality of financial institution, on the productivity distribution and other characteristics of a financially-dependent industry. We find that financial imperfection causes firm heterogeneity and that trade and capital movement are complements in the sense that trade in goods affects the productivity distribution only when accompanied by international capital movement (trade induces capital outflow from South when capital has been internationally mobile). We also find that an international difference in financial development induces reciprocal foreign direct investment.

Keywords: Complementarity, Financial Institution, FDI

JEL Classification: F12, F21, G20, G30

Suggested Citation

Furusawa, Taiji and Yanagawa, Noriyuki, Firm Heterogeneity Under Financial Imperfection: Impacts of Trade and Capital Movement (October 19, 2010). Available at SSRN: https://ssrn.com/abstract=1694601 or http://dx.doi.org/10.2139/ssrn.1694601

Noriyuki Yanagawa

University of Tokyo - Faculty of Economics ( email )

7-3-1 Hongo, Bunkyo-ku
Tokyo 113-0033
Japan

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