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Finance, Comparative Advantage, and Resource Allocation

  • Jaud, Melise

    ()

    (Paris School of Economics and World Bank)

  • Kukenova, Madina

    ()

    (University of Lausanne)

  • Strieborny, Martin

    ()

    (Department of Economics, Lund University)

We show that exported products exit the US market sooner if they violate the Heckscher-Ohlin notion of comparative advantage. Crucially, this pattern is stronger when exporting country has a well-developed banking system, measured by a high ratio of bank credit over the GDP. Banks thus push firms away from exports that are facing an uphill battle on a competitive foreign market due to a suboptimal use of the domestic factor endowment. Our results imply a disciplining role for bank credit in terminating inefficient trade flows. This constitutes a new channel through which finance improves resource allocation in the real economy.

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Paper provided by Lund University, Department of Economics in its series Working Papers with number 2013:13.

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Length: 36 pages
Date of creation: 22 Apr 2013
Date of revision:
Handle: RePEc:hhs:lunewp:2013_013
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Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund,Sweden

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Fax: +46 +46 2224613
Web page: http://www.nek.lu.se/en

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