Research

Working Papers

"When Does Finance Help Trade? Financial Development, Financial Heterogeneity, and Export" with Raoul Minetti & Pierluigi Murro

Credit sectors differ in depth and composition. We study financial development in an industry model of trade where the credit sector is heterogeneous and banks specialize in firm domestic or foreign activities. Internationally oriented banks encourage exports. Local banks’ expansion democratizes export by allowing financially vulnerable firms to enter foreign markets. However, it also fragments the export sector, inducing financially strong exporters to focus on domestic markets by reducing export intensities. Model calibration reveals that, in aggregate, local financial development can moderate inter-firm inequalities driven by internationalization while reducing trade flows. The predictions are consistent with evidence from Italian microdata.