Working Papers

"Exploring Heterogeneity in Financial Development-Trade Relationship" (with Rishav Bista, under review)

Various studies have explored the relationship between financial development (FD from here on) and trade using aggregate trade data and mean analysis, and as such, may have missed important dynamics. We explore potential heterogeneity in this relationship in several ways. We utilize dis-aggregated product level trade data to decompose exports into the extensive and intensive margins. We explore this relationship at different levels of FD, across different product categories, and whether it is contingent upon a country's economic size. Finally, we utilize total aggregate international trade relative to domestic sales to identify this relationship, even in the presence of multilateral trade resistance controls. In all cases, we find that this relationship is driven exclusively by the extensive margin suggesting that FD reduces fixed cost to exports. We also find an increasing returns to the FD-trade relationship and that low-income countries have more to gain from this relationship. Interestingly, the positive impact of FD is homogeneous across product categories. These findings present a unique opportunity for low-income countries to boost its exports, and even for high-tech intensive goods.

"Finance and Trade: the Role of Stock Markets and Importers"

This paper applies the gravity model of international trade to quantify the impact of the banking sector and the stock market on bilateral trade patterns. Following the study of capital structure, I evaluate the mix of external financing sources used for real investment at the macroeconomic level by differentiating between the relative roles of the banking sector and stock market development in determining trade patterns. Using aggregate bilateral trade data for 87 countries over 1976-2012, I find that stock market development has a substantial impact on trade, distinct from the effect of the banking sector. There is ample evidence to suggest that there is a heterogeneous effect of banking at different levels of stock market development, indicating a substitutability between the banking sector and the stock market as sources of finance. This is true for both the poor and non-poor country samples. Moreover, I find some evidence indicating the importance of the importer's stock market development for bilateral trade after dividing my sample by income groups.

"Finance, Growth, and Poverty: the Role of Financial Inclusion"

Amid reasonable consensus that financial development boosts economic performance, this paper aims to investigate whether growth is also propagated by a wider distribution of basic financial products, given a fixed level of financial development. In order to capture the distribution of financial products, I include financial inclusion variables. I also explore the collective impact of the financial variables on poverty. Controlling for time fixed effects and using an unbalanced panel dataset, I find that countries with lower financial inclusion are more likely to benefit from increase in financial development through increased growth rates. Countries with less people having bank accounts and savings are more likely to benefit from an increase in financial development through decrease in poverty. Borrowing only reduces poverty in countries that already have high access to financial products, but this is not true for less developed countries that have lower access to basic financial services. Lastly, financial inclusion increases growth rates for countries in the lower income bracket.

Works in progress

"Finance-Trade Relationship Across Distribution of Trade Flows" (with Rishav Bista)

"Can Monetary Policy Be a Curse for Commercial Lending?"

"Financial Development and Industry Level Trade"