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Finance, Comparative Advantage, and Resource Allocation

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  • Jaud, Melise

    ()

  • Kukenova, Madina

    ()

  • Strieborny, Martin

    ()

Abstract

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. Keywords: resource misallocation, finance, comparative advantage, ex- port survival

Suggested Citation

  • Jaud, Melise & Kukenova, Madina & Strieborny, Martin, 2013. "Finance, Comparative Advantage, and Resource Allocation," Knut Wicksell Working Paper Series 2013/11, Lund University, Knut Wicksell Centre for Financial Studies.
  • Handle: RePEc:hhs:luwick:2013_011
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    Citations

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    Cited by:

    1. Melise Jaud & Madina Kukenova & Martin Strieborny, 2015. "Financial Development and Sustainable Exports: Evidence from Firm-product Data," The World Economy, Wiley Blackwell, vol. 38(7), pages 1090-1114, July.
    2. Cadot, Olivier & Iacovone, Leonardo & Pierola, Martha Denisse & Rauch, Ferdinand, 2013. "Success and failure of African exporters," Journal of Development Economics, Elsevier, vol. 101(C), pages 284-296.
    3. Kukenova, Madina, 2011. "Financial liberalization and allocative dfficiency of capital," Policy Research Working Paper Series 5670, The World Bank.
    4. David VanHoose, 2013. "A Model of International Trade in Banking Services," Open Economies Review, Springer, vol. 24(4), pages 613-625, September.

    More about this item

    Keywords

    Resource misallocation; finance; comparative advantage; ex-port survival;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • G21 - Financial Economics - - Financial Institutions and Services - - - Banks; Other Depository Institutions; Micro Finance Institutions; Mortgages
    • G30 - Financial Economics - - Corporate Finance and Governance - - - General
    • O16 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance

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