Regional Implications of Financial Market Development: Credit Rationing, Trade, and Location
METADATA ONLY
Loading...
Author / Producer
Date
2013-01
Publication Type
Working Paper
ETH Bibliography
yes
Citations
Altmetric
METADATA ONLY
Data
Rights / License
Abstract
We develop a heterogeneous-firms model with trade in goods, labor mobility and credit constraints due to moral hazard. Mitigating financial frictions reduces the incentive of high-skilled workers to migrate to one region such that an unequal distribution of industrial activity becomes less likely. Hence, financial market development has opposite regional implications as trade liberalization. While the former leads to more dispersion of economic activity across space, the latter tends to drive clustering. We provide empirical evidence for this hypothesis by combining industry-region variation in the spatial concentration of economic activity with information on the access to credit and the dependence on external finance. Our estimates for 20 European countries and eleven industries confirm that financial market development mitigates the clustering of economic activity.
Permanent link
Publication status
published
External links
Editor
Book title
Journal / series
Volume
4063
Pages / Article No.
Publisher
CESifo
Event
Edition / version
Methods
Software
Geographic location
Date collected
Date created
Subject
Financial market development; Credit constraints; Moral hazard; Location; Migration; Heterogeneous firms; Trade; Labor mobility
Organisational unit
02525 - KOF Konjunkturforschungsstelle / KOF Swiss Economic Institute
03840 - Egger, Peter / Egger, Peter