Seminar: Taiji Furusawa, Hitotsubashi University, Kunitachi, Tokyo, Japan

Titel:

Endogenous Firm Heterogeniety under Financial Imperfection: Effects of International Goods and Capital Mobility.

Abstract:

The paper investigates the role of wealth distributions and financial institutions of an economy on within-industry firm heterogeneity in productivity and on international trade in goods and capital movement.

When borrowing is constrained under imperfect financial institution, entrepreneurs with different wealth levels may choose different investment levels, resulting in the firm heterogeneity in productivity. The paper examines the impacts of goods and capital trade between North and South, which differ in their wealth distributions and quality of the financial institution. We find that if the quality of the financial institution is much better in North than in South, capital flight from South occurs when only capital is allowed to move internationally. Trade in goods alone will not change the production side of the market structure, i.e., the number of firms for each productivity. Trade in goods, however, affects the production side of the market structure if capital is also allowed to move internationally. Trade in goods and capital movement are complements in this intriguing sense.