Comparative Advantage and Specialization in Bank Lending

Veronica Rappoport, Philipp Schnabl and Daniel Paravisini
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Daniel Paravisini: LSE

No 499, 2015 Meeting Papers from Society for Economic Dynamics

Abstract: We develop an empirical approach for identifying comparative advantages in bank lending. Using matched credit-export data from Peru, we first uncover patterns of bank specialization by export market: every country has a subset of banks with an abnormally large loan portfolio exposure to its exports. Using outliers to measure specialization, we use a revealed preference approach to show that bank specialization reflects a comparative advantage in lending. We show, in specifications that saturate all firm-time and bank-time variation, that firms that expand exports to a destination market tend to expand borrowing disproportionately more from banks specialized in that destination market. Bank comparative advantages increase with bank size in the cross section, and in the time series after mergers. Our results challenge the perceived view that, outside relationship lending, banks are perfectly substitutable sources of funding.

Date: 2015
New Economics Papers: this item is included in nep-ban and nep-ger
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