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Harmful Procompetitive Effects of Trade in Presence of Credit Market Frictions
Author(s) -
FOELLMI RETO,
OECHSLIN MANUEL
Publication year - 2020
Publication title -
journal of money, credit and banking
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 1.763
H-Index - 108
eISSN - 1538-4616
pISSN - 0022-2879
DOI - 10.1111/jmcb.12634
Subject(s) - productivity , economics , distribution (mathematics) , international economics , monetary economics , international trade , industrial organization , macroeconomics , mathematics , mathematical analysis
We explore the consequences of international trade in an economy that encompasses technology choice and an endogenous distribution of mark‐ups due to credit market 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 procompetitive effects of trade reduce mark‐ups and hence make access to credit more difficult for smaller firms. As a result, smaller firms—while not driven out of the market—may be forced to switch to less productive technologies.