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Finance, Comparative Advantage, and Resource Allocation

  • Jaud Melise ,
  • Kukenova Madina
  • Strieborny Martin

The paper examines the interplay between financial development and comparative advantage in shaping the survival of exporting firms on foreign markets. Exports suffering from comparative disadvantage (labour-intensive products from capital-abundant countries) survive shorter on the competitive US market. Crucially, the pattern is stronger if the exporting country has a well-developed banking system. This suggests a positive role for finance in pushing the manufacturing sector towards export composition congruent with the comparative advantage of a given country. A strong financial sector can thus mitigate misallocation of resources arising from inefficient exporting patterns.

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Paper provided by Université de Lausanne, Faculté des HEC, DEEP in its series Cahiers de Recherches Economiques du Département d'Econométrie et d'Economie politique (DEEP) with number 10.16.

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Length: 21 pages + appendix and tables
Date of creation: Nov 2010
Date of revision:
Handle: RePEc:lau:crdeep:10.16
Contact details of provider: Postal: Université de Lausanne, Faculté des HEC, DEEP, Internef, CH-1015 Lausanne
Phone: ++41 21 692.33.20
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