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Financial system architecture and the patterns ofinternational trade

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  • Amissah, Emmanuel
  • Bougheas, Spiro
  • Defever, Fabrice
  • Falvey, Rod

Abstract

Countries differ on the extent to which their financial system relies on banks or on the financial market. We offer a model featuring a possible two-way relationship between countries’ financial system architecture and their comparative advantage. Countries specialising in bank dependent sectors favour the development of the banking sector. Simultaneously, countries with more efficient capital markets develop comparative advantage in sectors with strong dependence on market finance. To empirically investigate our model’s predictions, we construct a measure of sector bank dependence and establish a strong relationship between countries’ comparative advantage and their financial system architecture

Suggested Citation

  • Amissah, Emmanuel & Bougheas, Spiro & Defever, Fabrice & Falvey, Rod, 2016. "Financial system architecture and the patterns ofinternational trade," LSE Research Online Documents on Economics 69016, London School of Economics and Political Science, LSE Library.
  • Handle: RePEc:ehl:lserod:69016
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    File URL: http://eprints.lse.ac.uk/69016/
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    Keywords

    financial systems; trade patterns; banks; direct finance;

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • G20 - Financial Economics - - Financial Institutions and Services - - - General
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages

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