Financial Development and Textile Sector Competitiveness: A Case Study of Pakistan

Muhammad Hanif and Sabina K. Jafri

MPRA Paper from University Library of Munich, Germany

Abstract: Kletzer and Bardhan (1987) argue that countries with a relatively well-developed financial sector have a comparative advantage in industries that rely on external finance. Beck (2002), and Fanelli and Medhora (2002) find that well-developed financial sector translates into a comparative advantage in the production of manufactured goods. There has been no attempt so far to explore the relationship between the financial development and international trade competitiveness in the case of Pakistan. We construct Balassa’s Revealed Comparative Advantage (RCA) index for textile sector of Pakistan. Using ratio of credit extended to the textile sector to the total non-government credit of the banking system (TCS) as proxy for external finance we estimate long run relationship, and ECM, between RCA index and TCS while controlling for other determinants of the international trade competitiveness of textile sector of Pakistan. In line with the findings of Beck (2002), and Fanelli and Medhora (2002), our results suggest that recourse to external finance has a strong positive impact on the country’s textile sector competitiveness both in the short and the long run even when we control for traditional determinants of competitiveness.

Keywords: Financial Development; Competitiveness (search for similar items in EconPapers)
JEL-codes: E44 F10 (search for similar items in EconPapers)
Date: 2006
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (4)

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Related works:
Working Paper: Financial Development and Textile Sector Competitiveness: A Case Study of Pakistan (2008)
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Persistent link: https://EconPapers.repec.org/RePEc:pra:mprapa:10271

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