Working Paper: NBER ID: w20634
Authors: C. Fritz Foley; Kalina Manova
Abstract: An emerging new literature brings unique ideas from corporate finance to the study of international trade and investment. Insights about differences in the development of financial institutions across countries, the role of financial constraints, and the use of internal capital markets are proving central in understanding international economics. The ability to access financial capital to pay fixed and variable costs affects choices firms make regarding export entry and operations, and, as a consequence, influence aggregate trade patterns. Financial frictions and the use of internal capital markets shape decisions that multinationals make regarding production locations, integration, and corporate governance. This article surveys this recent research with the goal of highlighting the main themes it explores, the key results it establishes, and the leading open questions it raises.
Keywords: International Trade; Multinational Firms; Corporate Finance
JEL Codes: F10; F20; F23; F36; G30
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Financial constraints (D10) | firms' choices regarding export entry and operations (F23) |
| Access to financial capital (O16) | firms' choices about export entry and operational strategies (L10) |
| Internal capital markets (G39) | multinational firms' production decisions (F23) |
| Financial frictions (G19) | trade patterns and multinational activity (F23) |
| Financial frictions (G19) | distortions in trade patterns (F12) |
| Credit constraints (E51) | export performance (F17) |