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Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage

Christian Keuschnigg and Michael Kogler

No 7398, CESifo Working Paper Series from CESifo Group Munich

Abstract: Trade and innovation cause structural change. Productive factors must flow from declining to growing industries. Banks play a major role in cutting credit to non-viable firms in downsizing sectors and in providing new credit to finance investment in expanding, innovative sectors. Structural parameters of a country’s banking system thus influence comparative advantage and trade, and can magnify the gains from trade liberalization. The analysis shows how insolvency laws, minimum capital standards, and cost of bank equity determine credit reallocation, sectoral expansion and trade patterns.

Keywords: capital reallocation; banking; trade; comparative advantage (search for similar items in EconPapers)
JEL-codes: F10 G21 G28 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-ban and nep-fdg
Date: 2018
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Working Paper: Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage (2018) Downloads
Working Paper: Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage (2018) Downloads
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