The observation that liquidations are concentrated in recessions has long been the subject of controversy. One view holds that liquidations are beneficial in that they result in increased restructuring. Another view holds that liquidations are privately inefficient and essentially wasteful. This...

Internationally active firms rely intensively on trade credits even though they are considered particularly expensive. This phenomenon has been little explored so far. Our theoretical analysis shows that trade credits can alleviate financial constraints arising from asymmetric information...

This paper develops a theory of international trade in which financial development and factor endowment jointly determine comparative advantage. We apply the financial contract model of Holmstrom and Tirole to the Heckscher-Ohlin-Samuelson (HOS) framework. A key result is what we call the law of...

Cross-country evidence is presented on resource dependence and the link between volatility and growth. First, growth depends negatively on volatility of unanticipated output growth independent of initial income per capita, the average investment share, initial human capital, trade openness, the...

This Paper challenges the North and Weingast (1989) view that institutional reforms and better protection of property rights lead to economic growth through a reduction in interest rates, and that a mechanism of this type accounted for Britain’s ascendancy to economic supremacy. We show that,...

This paper analyses the interaction between capital accumulation, technological progress and financial development. Growth is sustained by the development of new varieties of intermediate goods. Innovation is risky and the probability of success depends on entrepreneurs' actions, which can only...