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, influences 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.


Article metrics loading...

Loading full text...

Full text loading...


Literature Cited

  1. Aguiar M, Gopinath G. 2005. Fire-sale foreign direct investment and liquidity crises. Rev. Econ. Stat. 87:439–52 [Google Scholar]
  2. Ahn JB. 2011. A theory of domestic and international trade finance. Work. Pap. 11/262, Int. Monet. Fund, Washington, DC
  3. Ahn JB. 2014. Understanding trade finance: theory and evidence from transaction-level data. Work. Pap., Asia Pac. Dep., Int. Monet. Fund, Washington, DC
  4. Aitken BJ, Harrison AE. 1999. Do domestic firms benefit from direct foreign investment? Evidence from Venezuela. Am. Econ. Rev. 89:605–18 [Google Scholar]
  5. Alfaro L, Chanda A, Kalemli-Ozcan S, Sayek S. 2004. FDI and economic growth: the role of local financial markets. J. Int. Econ. 64:89–112 [Google Scholar]
  6. Alfaro L, Chen MX. 2012. Surviving the global financial crisis: foreign ownership and establishment performance. Am. Econ. J. Econ. Policy 4:330–55 [Google Scholar]
  7. Alfaro L, Kalemli-Ozcan S, Sayek S. 2009. FDI, productivity and financial development. World Econ. 32:111–35 [Google Scholar]
  8. Amiti M, Weinstein DE. 2011. Exports and financial shocks. Q. J. Econ. 126:1841–77 [Google Scholar]
  9. Antràs P, Caballero R. 2009. Trade and capital flows: a financial frictions perspective. J. Polit. Econ. 117:701–44 [Google Scholar]
  10. Antràs P, Desai MA, Foley CF. 2009. Multinational firms, FDI flows and imperfect capital markets. Q. J. Econ. 124:1171–219 [Google Scholar]
  11. Antràs P, Foley CF. 2015. Poultry in motion: a study of international trade finance practices. J. Polit. Econ. In press [Google Scholar]
  12. Antràs P, Rossi-Hansberg E. 2009. Organizations and trade. Annu. Rev. Econ. 1:43–64 [Google Scholar]
  13. Auboin M. 2009. Boosting the availability of trade finance in the current crisis: background analysis for a substantial G20 package. CEPR Policy Insights 35:1–7 [Google Scholar]
  14. Baker M, Foley CF, Wurgler J. 2009. Multinationals as arbitrageurs? The effects of stock market valuations on foreign direct investment. Rev. Financ. Stud. 22:337–69 [Google Scholar]
  15. Beck T. 2002. Financial development and international trade: Is there a link?. J. Int. Econ. 57:107–31 [Google Scholar]
  16. Beck T. 2003. Financial dependence and international trade. Rev. Int. Econ. 11:296–316 [Google Scholar]
  17. Beck T, Demirgüç-Kunt A, Levine R. 2000. A new database on the structure and development of the financial sector. World Bank Econ. Rev. 14:597–605 [Google Scholar]
  18. Becker B, Chen J, Greenberg D. 2013. Financial development, fixed costs, and international trade. Rev. Corp. Financ. Stud. 2:1–28 [Google Scholar]
  19. Behrens K, Corcos G, Mion G. 2013. Trade crisis? What trade crisis?. Rev. Econ. Stat. 95:702–9 [Google Scholar]
  20. Bekaert G, Harvey CR. 1995. Time-varying world market integration. J. Finance 50:403–44 [Google Scholar]
  21. Bekaert G, Harvey CR, Lundblad CT, Siegel S. 2011. What segments equity markets?. Rev. Financ. Stud. 24:3841–90 [Google Scholar]
  22. Berman N, Berthou A. 2009. Financial market imperfections and the impact of exchange rate movements on exports. Rev. Int. Econ. 17:103–20 [Google Scholar]
  23. Berman N, de Sousa J, Martin P, Mayer T. 2013. Time to ship during financial crises. NBER International Seminar on Macroeconomics 2012225–60 Chicago: Univ. Chicago Press [Google Scholar]
  24. Berman N, Héricourt J. 2010. Financial factors and the margins of trade: evidence from cross-country firm-level data. J. Dev. Econ. 93:206–17 [Google Scholar]
  25. Bernard AB, Eaton J, Jensen JB, Kortum S. 2003. Plants and productivity in international trade. Am. Econ. Rev. 93:1268–90 [Google Scholar]
  26. Bernard AB, Jensen JB, Redding SJ, Schott PK. 2012. The empirics of firm heterogeneity and international trade. Annu. Rev. Econ. 4:283–313 [Google Scholar]
  27. Bilir LK, Chor D, Manova K. 2014. Host country financial development and MNC activity. Work. Pap., Dep. Econ., Stanford Univ., Stanford, CA
  28. Blalock G, Gertler PJ. 2008. Welfare gains from foreign direct investment through technology transfer to local suppliers. J. Int. Econ. 74:402–21 [Google Scholar]
  29. Blalock G, Gertler PJ, Levine DI. 2008. Financial constraints on investment in an emerging market crisis. J. Monet. Econ. 55:568–91 [Google Scholar]
  30. Blanchard OJ, López-de-Silanes F, Shleifer A. 1994. What do firms do with cash windfalls?. J. Financ. Econ. 36:337–60 [Google Scholar]
  31. Blonigen BA, Davies RB, Head K. 2003. Estimating the knowledge-capital model of the multinational enterprise. Comment. Am. Econ. Rev. 93:980–94 [Google Scholar]
  32. Braun M, Raddatz C. 2008. The politics of financial development: evidence from trade liberalization. J. Finance 63:1469–508 [Google Scholar]
  33. Bricongne JC, Fontagné L, Gaulier G, Taglioni D, Vicard V. 2012. Firms and the global crisis: French exports in the turmoil. J. Int. Econ. 87:134–46 [Google Scholar]
  34. Brooks W, Dovis A. 2013. Credit market frictions and trade liberalization. Unpublished manuscript, Univ. Minnesota, Minneapolis
  35. Buch CM, Kesternich I, Lipponer A, Schnitzer M. 2009. Financial constraints and the margins of FDI. Discuss. Pap. 7444, Cent. Econ. Policy Res., London
  36. Bustos P. 2007. FDI as a source of finance in imperfect capital markets: firm-level evidence from Argentina. Unpublished manuscript, Pompeu Fabra Univ., Barcelona
  37. Caggese A, Cuñat V. 2013. Financing constraints, firm dynamics, export decisions, and aggregate productivity. Rev. Econ. Dyn. 16:177–93 [Google Scholar]
  38. Carluccio J, Fally T. 2012. Global sourcing under imperfect capital markets. Rev. Econ. Stat. 94:740–63 [Google Scholar]
  39. Carr DL, Markusen JR, Maskus KE. 2001. Estimating the knowledge-capital model of the multinational enterprise. Am. Econ. Rev. 91:693–708 [Google Scholar]
  40. Castagnino T, D’Amato L, Sangiácomo M. 2013. How do firms in Argentina get financing to export? Work. Pap. 1601, Eur. Cent. Bank, Frankfurt
  41. Chan J. 2014. Trade intermediation, financial frictions, and the gains from trade. Unpublished manuscript, Stanford Univ., Stanford, CA
  42. Chan J, Manova K. 2013. Financial development and the choice of trade partners. NBER Work. Pap. 18867
  43. Chaney T. 2013. Liquidity constrained exporters. NBER Work. Pap. 19170
  44. Chor D, Manova K. 2012. Off the cliff and back: credit conditions and international trade during the global financial crisis. J. Int. Econ. 87:117–33 [Google Scholar]
  45. Claessens S, Laeven L. 2003. Financial development, property rights, and growth. J. Finance 58:2401–36 [Google Scholar]
  46. Demir B, Javorcik B. 2014. Grin and bear it: producer-financed exports from an emerging market. Unpublished manuscript, Oxford Univ., Oxford, UK
  47. Desai MA, Foley CF, Forbes KJ. 2008. Financial constraints and growth: multinational and local firm responses to currency depreciations. Rev. Financ. Stud. 21:2857–88 [Google Scholar]
  48. Desai MA, Foley CF, Hines JR. 2004. A multinational perspective on capital structure choice and internal capital markets. J. Finance 59:2451–87 [Google Scholar]
  49. Desai MA, Foley CF, Hines JR. 2007. The internal markets of multinational firms. Surv. Curr. Bus. 87:42–48 [Google Scholar]
  50. Dewenter KL. 1995. Do exchange rate changes drive foreign direct investment?. J. Bus. 68:405–33 [Google Scholar]
  51. Djankov S, La Porta R, López-de-Silanes F, Shleifer A. 2008. The law and economics of self-dealing. J. Financ. Econ. 88:430–65 [Google Scholar]
  52. Djankov S, McLiesh C, Shleifer A. 2007. Private credit in 129 countries. J. Financ. Econ. 84:299–329 [Google Scholar]
  53. Do QT, Levchenko AA. 2007. Comparative advantage, demand for external finance, and financial development. J. Financ. Econ. 86:796–834 [Google Scholar]
  54. Engemann M, Eck K, Schnitzer M. 2014. Trade credits and bank credits in international trade: substitutes or complements?. World Econ. 37:1507–40 [Google Scholar]
  55. Feenstra RC, Li Z, Yu M. 2014. Exports and credit constraints under incomplete information: theory and evidence from China. Rev. Econ. Stat. 96:729–44 [Google Scholar]
  56. Felbermayr GJ, Heiland I, Yalcin E. 2013. Export credit guarantees and firm growth: micro-level evidence for Germany. Unpublished manuscript, Ifo Inst., Munich, Germany
  57. Foley CF, Johnson M, Lane D. 2010. Note on international trade finance. Note 211-007, Harvard Bus. Sch., Boston, MA
  58. Froot KA, Dabora EM. 1999. How are stock prices affected by the location of trade?. J. Financ. Econ. 53:189–216 [Google Scholar]
  59. Froot KA, Stein JC. 1991. Exchange rates and foreign direct investment: an imperfect capital markets approach. Q. J. Econ. 106:1191–217 [Google Scholar]
  60. Görg H, Spaliara ME. 2014. Exporters in the financial crisis. Natl. Inst. Econ. Rev. 228:49–57 [Google Scholar]
  61. Greenaway D, Guariglia A, Kneller R. 2007. Financial factors and exporting decisions. J. Int. Econ. 73:377–95 [Google Scholar]
  62. Haddad M, Harrison A. 1993. Are there positive spillovers from direct foreign investment? Evidence from panel data for Morocco. J. Dev. Econ. 42:51–74 [Google Scholar]
  63. Hanson GH, Mataloni RJ, Slaughter MJ. 2005. Vertical production networks in multinational firms. Rev. Econ. Stat. 87:667–78 [Google Scholar]
  64. Harrison AE, Love I, McMillan MS. 2004. Global capital flows and financing constraints. J. Dev. Econ. 75:269–301 [Google Scholar]
  65. Harrison AE, McMillan MS. 2003. Does direct foreign investment affect domestic credit constraints?. J. Int. Econ. 61:73–100 [Google Scholar]
  66. Helpman E. 1984. A simple theory of trade with multinational corporations. J. Polit. Econ. 92:451–71 [Google Scholar]
  67. Helpman E, Melitz MJ, Yeaple SR. 2004. Exports versus FDI with heterogeneous firms. Am. Econ. Rev. 94:300–16 [Google Scholar]
  68. Henderson BJ, Jegadeesh N, Weisbach MS. 2006. World markets for raising new capital. J. Financ. Econ. 82:63–101 [Google Scholar]
  69. Héricourt J, Poncet S. 2015. Exchange rate volatility, financial constraint and trade: empirical evidence from Chinese firms. World Bank Econ. Rev. In press [Google Scholar]
  70. Hoefele A, Schmidt-Eisenlohr T, Yu Z. 2013. Payment choice in international trade: theory and evidence from cross-country firm level data. Work. Pap. 4350, CESifo, Munich
  71. Huizinga H, Laeven L, Nicodème G. 2008. Capital structure and international debt shifting. J. Financ. Econ. 88:80–118 [Google Scholar]
  72. Hur J, Raj M, Riyanto YE. 2006. Finance and trade: a cross-country empirical analysis on the impact of financial development and asset tangibility on international trade. World Dev. 34:728–41 [Google Scholar]
  73. Hymer S. 1960. The international operations of national firms, a study of direct foreign investment. PhD Thesis, Mass. Inst. Technol., Cambridge, MA
  74. Iacovone L, Zavacka V. 2009. Banking crises and exports: lessons from the past. Policy Res. Work. Pap. 5016, World Bank, Washington, DC
  75. Javorcik BS. 2004. Does foreign direct investment increase the productivity of domestic firms? In search of spillovers through backward linkages. Am. Econ. Rev. 94:605–27 [Google Scholar]
  76. Javorcik BS, Spatareanu M. 2009. Liquidity constraints and firms' linkages with multinationals. World Bank Econ. Rev. 23:323–46 [Google Scholar]
  77. Jensen MC, Meckling WH. 1976. Theory of the firm: managerial behavior, agency costs and ownership structure. J. Financ. Econ. 3:305–60 [Google Scholar]
  78. Ju J, Wei SJ. 2010. Domestic institutions and the bypass effect of financial globalization. Am. Econ. J. Econ. Policy 2:4173–204 [Google Scholar]
  79. Ju J, Wei SJ. 2011. When is quality of financial system a source of comparative advantage?. J. Int. Econ. 84:178–87 [Google Scholar]
  80. Kalemli-Ozcan S, Kim SJ, Shin HS, Sørensen B, Yesiltas S. 2013. Financial shocks in production chains. Unpublished manuscript, Princeton Univ., Princeton, NJ
  81. Klein MW, Peek J, Rosengren ES. 2002. Troubled banks, impaired foreign direct investment: the role of relative access to credit. Am. Econ. Rev. 92:664–82 [Google Scholar]
  82. Klein MW, Rosengren ES. 1994. The real exchange rate and foreign direct investment in the United States. J. Int. Econ. 36:373–89 [Google Scholar]
  83. Kletzer K, Bardhan P. 1987. Credit markets and patterns of international trade. J. Dev. Econ. 27:57–70 [Google Scholar]
  84. Kohn D, Leibovici F, Szkup M. 2014. Financial frictions and new exporter dynamics. Unpublished manuscript, New York Univ
  85. Krugman P. 2000. Fire-sale FDI. Capital Flows and the Emerging Economies: Theory, Evidence, and Controversies Edwards S. 43–58 Chicago: Univ. Chicago Press [Google Scholar]
  86. La Porta R, López-de-Silanes F, Shleifer A. 2008. The economic consequences of legal origins. J. Econ. Lit. 46:285–332 [Google Scholar]
  87. La Porta R, López-de-Silanes F, Shleifer A, Vishny R. 1998. Law and finance. J. Polit. Econ. 106:1113–55 [Google Scholar]
  88. Lamont O. 1997. Cash flow and investment: evidence from internal capital markets. J. Finance 52:83–109 [Google Scholar]
  89. Lee S. 2014. Business groups and export financing. Unpublished manuscript, Stanford Univ., Stanford, CA
  90. Leibovici F. 2013. Financial development and international trade. Unpublished manuscript, New York Univ
  91. Levine R. 2005. Finance and growth: theory and evidence. Handbook of Economic Growth Vol. 1 Aghion P, Durlauf S. 865–934 Amsterdam: North-Holland [Google Scholar]
  92. Manova K. 2008. Credit constraints, equity market liberalizations and international trade. J. Int. Econ. 76:33–47 [Google Scholar]
  93. Manova K. 2013. Credit constraints, heterogeneous firms and international trade. Rev. Econ. Stud. 80:711–44 [Google Scholar]
  94. Manova K, Wei SJ, Zhang Z. 2015. Firm exports and multinational activity under credit constraints. Rev. Econ. Stat. In press [Google Scholar]
  95. Manova K, Yu Z. 2012. Firms and credit constraints along the global value chain: processing trade in China. NBER Work. Pap. 18561
  96. Marin D, Schnitzer M. 2011. When is FDI a capital flow?. Eur. Econ. Rev. 55:845–61 [Google Scholar]
  97. Matsuyama K. 2005. Credit market imperfections and patterns of international trade and capital flows. J. Eur. Econ. Assoc. 3:714–23 [Google Scholar]
  98. Melitz MJ. 2003. The impact of trade on intra-industry reallocations and aggregate industry productivity. Econometrica 71:1695–725 [Google Scholar]
  99. Melitz MJ, Redding SJ. 2014. New trade models, new welfare implications. Unpublished manuscript, Harvard Univ., Cambridge, MA
  100. Meyer JR, Kuh E. 1957. The Investment Decision: An Empirical Study Cambridge, MA: Harvard Univ. Press
  101. Minetti R, Zhu SC. 2011. Credit constraints and firm export: microeconomic evidence from Italy. J. Int. Econ. 83:109–25 [Google Scholar]
  102. Muûls M. 2008. Exporters and credit constraints: a firm level approach. Work. Pap. 139, Nat. Bank Belg., Brussels
  103. Myers S, Majluf N. 1984. Corporate financing and investment decisions when firms have information that investors do not have. J. Financ. Econ. 13:187–221 [Google Scholar]
  104. Niepmann F, Schmidt-Eisenlohr T. 2014a. International trade, risk and the role of banks. Work. Pap. 633, Fed. Reserve Bank New York
  105. Niepmann F, Schmidt-Eisenlohr T. 2014b. No guarantees, no trade: how banks affect export patterns. Work. Pap. 659, Fed. Reserve Bank New York
  106. Olsen M. 2013. How firms overcome weak international contract enforcement: repeated interaction, collective punishment and trade finance. Work. Pap., IESE Bus. Sch., Univ. Navarra, Pamplona, Spain
  107. Noe TH. 2000. Creditor rights and multinational capital structure. Work. Pap., Tulane Univ., New Orleans
  108. Paravisini D, Rappoport V, Schnabl P, Wolfenzon D. 2015. Dissecting the effect of credit supply on trade: evidence from matched credit-export data. Rev. Econ. Stud. 82:1333–59 [Google Scholar]
  109. Rajan RG, Zingales L. 1998. Financial dependence and growth. Am. Econ. Rev. 88:559–86 [Google Scholar]
  110. Rajan RG, Zingales L. 2003. The great reversals: the politics of financial development in the twentieth century. J. Financ. Econ. 69:5–50 [Google Scholar]
  111. Redding SJ. 2011. Theories of heterogeneous firms and trade. Annu. Rev. Econ. 3:77–105 [Google Scholar]
  112. Schmidt-Eisenlohr T. 2013. Towards a theory of trade finance. J. Int. Econ. 91:96–112 [Google Scholar]
  113. Svaleryd H, Vlachos J. 2005. Financial markets, the pattern of industrial specialization and comparative advantage: evidence from OECD countries. Eur. Econ. Rev. 49:113–44 [Google Scholar]
  114. Święcki T. 2010. Credit constraints, trade and wealth distribution. Unpublished manuscript, Dep. Econ., Univ. Br. Columbia, Vancouver
  115. Whalley J, Nam CW. 2014. State export credit guarantees in a globalized world. CESifo Forum 153 Munich: Ifo Inst [Google Scholar]
  116. Yeaple SR. 2003. The role of skill endowments in the structure of U.S. outward foreign direct investment. Rev. Econ. Stat. 85:726–34 [Google Scholar]
  117. Yeaple SR. 2013. The multinational firm. Annu. Rev. Econ. 5:193–217 [Google Scholar]

Data & Media loading...

  • Article Type: Review Article
This is a required field
Please enter a valid email address
Approval was a Success
Invalid data
An Error Occurred
Approval was partially successful, following selected items could not be processed due to error