Credit market frictions and trade liberalizations

Wyatt Brooks, Alessandro Dovis

Research output: Contribution to journalArticlepeer-review

14 Scopus citations


Are credit frictions a barrier to gains from trade liberalization? We find that the answer to this depends on whether or not the debt limits are endogenous and respond to profit opportunities. If so, exporters expand and non-exporters shrink efficiently allowing for the same percentage gains from reform as with perfect credit markets. If debt limits do not respond, reallocation is reduced and gains are lower. We then use data from a trade liberalization to distinguish between the two models. We find that firm-level changes in export behavior, the growth of new exporters, and the capital distortions of firms that eventually exports are all consistent with a model of endogenous debt limits.

Original languageEnglish (US)
Pages (from-to)32-47
Number of pages16
JournalJournal of Monetary Economics
StatePublished - May 2020
Externally publishedYes


  • Credit frictions
  • Gains from trade
  • Limited enforcement
  • Trade liberalization

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics


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