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What Do We Know about the Relationship between Access to Finance and International Trade?

The recent financial crisis has focused attention on the relationship between access to finance and international trade, triggering a burgeoning segment of the literature evaluating this link empirically. We review the role of finance in international trade and the main theories connecting them. Moreover, we provide a structured road map to recent empirical studies while summarizing what we have learned to date about this relationship. We separately analyze studies that rely on aggregate, industry-level, and firm-level data, emphasizing the differences between those that analyze ordinary times and those that focus on banking and financial crises. We discuss the role of diverse measures of access to finance, financial health, and financial vulnerability along with the key challenges in estimating the relationship between trade and finance. We conclude that once the heterogeneity of methodologies and measures of access to and dependence on finance is accounted for, the empirical literature suggests an important role for finance in determining export participation at the extensive margin but weaker results for the intensive margin of trade. Moreover, while empirical studies tend to favor a causal relationship moving from finance to trade, there is some evidence suggesting causality moving in the opposite direction, which merits further investigation.

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