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2003), “The Real Effects of Finance: Evidence from Exports,” Graduate

By Bo Becker and David Greenberg


Abstract. In this paper, we investigate the link between financial development and exports. Using bilateral trade data, we find that having a better financial system increases exports. To explain this result, we propose that exporting firms face significant up-front fixed costs in product design, marketing, distribution etc. In an economy where outside financing for such investments is difficult to secure, exports suffer. Consistent with this explanation, we find that the marginal impact of financial development on exports is higher in those industries and country pairs where up-front investments are large, due to either product characteristics or economic distance between exporter and importer. Further supporting evidence comes from periods of bank crises, when exports of goods with high up-front costs fall more than other exports. Finally, we examine the effect of finance on the responsiveness of exports to exchange rates. We find that short-term elasticity of exports is considerably higher in countries with good finance, and that the allocation of exports across importers is much more sensitive to relative real exchange rates

Year: 2011
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