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Financial development and international trade : is there a link?

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  • Beck, Thorsten

Abstract

The author explores a possible link between financial development and trade in manufactures. His theoretical model focuses on the role of financial intermediaries in facilitating large-scale, high-return projects. Results show that economies with better developed financial sectors have a comparative advantage in manufacturing industries. He provides evidence for this hypothesis, first proposed by Kletzer and Bardhan (1987), using a 30-year panel of data for 65 countries. Controlling for country-specific effects and possible reverse causality, he shows that financial development exerts a large causal impact on the level of both exports and the trade balance of manufactured goods.

Suggested Citation

  • Beck, Thorsten, 2001. "Financial development and international trade : is there a link?," Policy Research Working Paper Series 2608, The World Bank.
    • Handle: RePEc:wbk:wbrwps:2608
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    References listed on IDEAS

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