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Financial Development and Textile Sector Competitiveness: A Case Study of Pakistan

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  • Hanif, Muhammad N.
  • Jafri, Sabina K.

Abstract

Kletzer and Bardhan (1987) argue that countries with a relatively well-developed financial sector have a comparative advantage in industries that rely on external finance. Beck (2002), and Fanelli and Medhora (2002) find that well-developed financial sector translates into a comparative advantage in the production of manufactured goods. There has been no attempt so far to explore the relationship between the financial development and international trade competitiveness in the case of Pakistan. We construct Balassa’s Revealed Comparative Advantage (RCA) index for textile sector of Pakistan. Using ratio of credit extended to the textile sector to the total non-government credit of the banking system (TCS) as proxy for external finance we estimate long run relationship, and ECM, between RCA index and TCS while controlling for other determinants of the international trade competitiveness of textile sector of Pakistan. In line with the findings of Beck (2002), and Fanelli and Medhora (2002), our results suggest that recourse to external finance has a strong positive impact on the country’s textile sector competitiveness both in the short and the long run even when we control for traditional determinants of competitiveness.

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Bibliographic Info

Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 10271.

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Date of creation: 2006
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Handle: RePEc:pra:mprapa:10271

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Keywords: Financial Development; Competitiveness;

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References

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  1. Kenneth Kletzer and Pranab Bardhan., 1986. "Credit Markets and Patterns of International Trade," Economics Working Papers 8612, University of California at Berkeley.
  2. Raghuram G. Rajan & Luigi Zingales, 1996. "Financial Dependence and Growth," NBER Working Papers 5758, National Bureau of Economic Research, Inc.
  3. Beck, Thorsten, 2001. "Financial development and international trade : is there a link?," Policy Research Working Paper Series 2608, The World Bank.
  4. repec:fth:wobaco:1083 is not listed on IDEAS
  5. Levine, Ross, 1996. "Financial development and economic growth : views and agenda," Policy Research Working Paper Series 1678, The World Bank.
  6. King, Robert G & Levine, Ross, 1993. "Finance and Growth: Schumpeter Might Be Right," The Quarterly Journal of Economics, MIT Press, vol. 108(3), pages 717-37, August.
  7. David H. Romer & Jeffrey A. Frankel, 1999. "Does Trade Cause Growth?," American Economic Review, American Economic Association, vol. 89(3), pages 379-399, June.
  8. Engle, Robert F & Granger, Clive W J, 1987. "Co-integration and Error Correction: Representation, Estimation, and Testing," Econometrica, Econometric Society, vol. 55(2), pages 251-76, March.
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Cited by:
  1. Sadaf Shahab & Muhammad Tariq Mahmood, 2013. "Comparative Advantage of Leather Industry in Pakistan with Selected Asian Economies," International Journal of Economics and Financial Issues, Econjournals, vol. 3(1), pages 133-139.
  2. Hanif, M.N. & Husain, F. & Jafri, S., 2008. "Financial Sector Reforms and International Trade Competitiveness: A Case Study of Pakistan," MPRA Paper 36730, University Library of Munich, Germany, revised 31 Jan 2012.

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