NO CREDIT, NO GAIN: TRADE LIBERALIZATION DYNAMICS, PRODUCTION INPUTS, AND FINANCIAL DEVELOPMENT

We study the role of financial development on aggregate implications reducing import tariffs capital and intermediate inputs. document empirically that financially underdeveloped economies feature a slower response following trade liberalization. To quantify these effects, we set up general equilibrium model with heterogeneous firms subject to collateral constraints estimate it using Colombian plant-level data. find low substantially limited gains from liberalization in Colombia early 1990s. More broadly, limits both welfare tariff reductions.