We join the new trade theory with a model of choice between bank and bond financing to show the differential effects of financial policy on the distribution of firm size, welfare, aggregate output, gains from trade, and the real exchange rate in a small open economy. Increasing bank efficiency...

It is a well known quandry that when countries open their financial sectors, foreign-owned banks appear to bring superior efficiency to their host markets but also charge higher markups on borrowed funds than their domestically owned rivals, with unknown impacts on interest rates and welfare....

Does the mere presence of big banks affect macroeconomic outcomes? In this paper, we develop a theory of granularity (Gabaix, 2011) for the banking sector, introducing Bertrand competition and heterogeneous banks charging variable markups. Using this framework, we show conditions under which...

The purpose of this paper is to understand the effects of endogenous markups and trade costs on the pricing behavior of exporters when firms are heterogeneous in productivity. Using new analytical distributions for markups under Bertrand competition, we uncover Ricardian patterns of export...

Using data over more than a century, we show that shifts in the location of manufacturing industries are a domestic reflection of what the international trade literature refers to as the product cycle in a cross-country context, with industries spawning in high-wage areas with larger pools of...

Using a model with upfront sunk costs, heterogeneous firms, and endogenous exchange rates, this paper demonstrates theoretically that volatility in fundamental variables such as the nominal interest rate that drive exchange rate volatility can simultaneously impact the entry behavior of...

When trade comes up in conversation these days, a favorite talking point by people who oppose it is, “But it causes so much inequality, which outweighs the benefits.” The refrain has spread like wildfire through the left and the right, through key national and global institutions, even among...

Using data over more than a century, we show that shifts in the location of manufacturing industries are a domestic reflection of what the international trade literature refers to as the product cycle in a cross-country context, with industries spawning in high-wage areas with larger pools of...

We study whether tariff preferences conferred on South Korean goods through the implementation of the Korea-U.S. Free Trade Agreement (KORUS) drew U.S. import demand away from other U.S. trading partners through the phenomenon known as trade diversion. In the two years following the...

Can allowing foreign participation in the banking sector increase real output, despite the imperfectly competitive nature of the industry? Using a new model of heterogeneous, imperfectly competitive lenders and a simple search process, we show how endogenous markups (the net interest margin...