Trade and Capital Flows: A Financial Frictions Perspective

Abstract

The classical Heckscher-Ohlin-Mundell paradigm states that trade and capital mobility are substitutes in the sense that trade integration reduces the incentives for capital to flow to capital-scarce countries. In this paper we show that in a world with heterogeneous financial development, a very different conclusion emerges. In particular, in less financially developed economies (South), trade and capital mobility are complements in the sense that trade integration increases the return to capital and thus the incentives for capital to flow to South. This interaction implies that deepening trade integration in South raises net capital inflows (or reduces net capital outflows). It also implies that, at the global level, protectionism may backfire if the goal is to rebalance capital flows. (c) 2009 by The University of Chicago. All rights reserved..

Credit constraints and firm export: Microeconomic evidence from Italy

“…This paper is related to the theoretical literature on the effects of credit imperfections on firms' investment and growth (see, e.g., Bernanke and Gertler, 1990;Clementi and Hopenhayn, 2006;Antràs and Caballero, 2009). More specifically, it takes to the data the predictions of a growing literature on the impact of credit imperfections on firms' export (e.g., Manova, 2010;and Chaney, 2005).…”

International Trade, Multinational Activity, and Corporate Finance

“…Aggregate effects have been considered in recent general equilibrium models with financial frictions, whereas recent empirical papers have explored how credit constraints modify the impact of shocks. Initial ideas related to these questions are presented by Antràs & Caballero (2009) Kohn et al (2014), and Héricourt & Poncet (2015). Antràs & Caballero (2009), for example, show that in countries with lower levels of financial development, trade and capital mobility can be complements in general equilibrium because trade integration increases the return to capital and stimulates capital flows.…”

“…Initial ideas related to these questions are presented by Antràs & Caballero (2009) Kohn et al (2014), and Héricourt & Poncet (2015). Antràs & Caballero (2009), for example, show that in countries with lower levels of financial development, trade and capital mobility can be complements in general equilibrium because trade integration increases the return to capital and stimulates capital flows. These findings contrast with the predictions of classical paradigms that do not account for financial frictions.…”

Village Economic Accounts: Real and Financial Intertwined

“…With this particular linking in the model of real and financial variables, we can simulate well the observed increase in the wage rate in central villages. Antràs and Caballero (2009) also consider an international trade model with financial frictions, though the movements of factor prices in their model are opposite what we have observed in the Thai data. Their model, however, was designed to address international, cross-country movements.…”