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Finance, comparative advantage, and resource allocation, Volume 1
Author:Jaud, Melise; Kukenova, Madina; Strieborny, Martin; Country:United States; World;
Date Stored:2012/06/29Document Date:2012/06/01
Document Type:Policy Research Working PaperSubTopics:Markets and Market Access; Economic Theory & Research; Banks & Banking Reform; Debt Markets; Inequality
Language:EnglishRegion:Rest Of The World; The World Region
Report Number:WPS6111Collection Title:Policy Research working paper ; no. WPS 6111
Volume No: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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