Credit Rationing and Patterns of New Product Trade

This paper examines credit rationing implications for patterns of international trade in newly invented products. New product develpment is often associated with risk and its profit is uncertain. When this problem is exacerbated by asymmetric information, credit rationing becomes the optimal strategy of lenders. As a resul, a country's pattern of trade is indeterminate. The resulting pattern of trade is not the consequence of comparative advantages or increasing returns to scale.