Finance, comparative advantage, and resource allocation, Vol. 1 of 1

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Finance, comparative advantage, and resource allocation

Author:	Jaud, Melise; Kukenova, Madina; Strieborny, Martin;	Collection Title:	Policy Research working paper ; no. WPS 6111
Country:	United States; World;	Date Stored:	2012/06/29
Document Date:	2012/06/01	Document Type:	Policy Research Working Paper
Language:	English	Region:	Rest Of The World; The World Region
Report Number:	WPS6111	SubTopics:	Markets and Market Access; Economic Theory & Research; Banks & Banking Reform; Debt Markets; Inequality
Volume No:	1 of 1

Summary: The authors 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. The 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.


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