Financial institution and firm heterogeneity: effects of international capital movement and costly trade in goods on industrial structures

Building on an earlier version of Furusawa and Yanagawa (2009), this paper argues that finansial imperfection causes firm heterogeneity in productivity. In the existence of fixed costs of exporting, international trade in goods increases the number of high-tech firms while it decreases the number of low-tech firms in each of he symmetric countries. International capital movements, on the other hand, leads to a capital inflow to a financially developed country expanding its industy that requires ex post investment, while it leads to a calital outflow from a financially undeveloped country shrinking its industry