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Financial Markets, Industrial Specialization and Comparative Advantage - Evidence from OECD Countries

  • Svaleryd, Helena

    (Dept. of Economics, Stockholm University)

  • Vlachos, Jonas

    ()

    (Department of Economics, Stockholm School of Economics)

Due to underlying technological and organizational differences, industries differ in their need for external finance. Since services provided by the financial sector are largely immobile across countries, the pattern of industrial specialization should be influenced by the degree of financial development. We find this effect to be strong. In fact, the financial sector has greater impact on industrial specialization among OECD countries than differences in human and physical capital. We also show that the causality indeed run from the financial sector to specialization. Further, financial sectors are a source of comparative advantage in a way consistent with the Hecksher-Ohlin-Vanek model. Results on which aspects of financial systems that are of importance for specialization and comparative advantage are also presented.

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Paper provided by Stockholm University, Department of Economics in its series Research Papers in Economics with number 2002:6.

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Length: 43 pages
Date of creation: 13 Jun 2002
Date of revision:
Handle: RePEc:hhs:sunrpe:2002_0006
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