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Comparative Advantage and Specialization in Bank Lending

Author

Listed:
  • Veronica Rappoport

    (London School of Economics)

  • Philipp Schnabl

    (NYU Stern)

  • Daniel Paravisini

    (LSE)

Abstract

We develop an empirical approach for identifying comparative advantages in bank lending. Using matched credit-export data from Peru, we first uncover patterns of bank specialization by export market: every country has a subset of banks with an abnormally large loan portfolio exposure to its exports. Using outliers to measure specialization, we use a revealed preference approach to show that bank specialization reflects a comparative advantage in lending. We show, in specifications that saturate all firm-time and bank-time variation, that firms that expand exports to a destination market tend to expand borrowing disproportionately more from banks specialized in that destination market. Bank comparative advantages increase with bank size in the cross section, and in the time series after mergers. Our results challenge the perceived view that, outside relationship lending, banks are perfectly substitutable sources of funding.

Suggested Citation

  • Veronica Rappoport & Philipp Schnabl & Daniel Paravisini, 2015. "Comparative Advantage and Specialization in Bank Lending," 2015 Meeting Papers 499, Society for Economic Dynamics.
  • Handle: RePEc:red:sed015:499
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    References listed on IDEAS

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    Cited by:

    1. Tomas Williams, 2018. "Capital Inflows, Sovereign Debt and Bank Lending: Micro-Evidence from an Emerging Market," Review of Financial Studies, Society for Financial Studies, vol. 31(12), pages 4958-4994.

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