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Finance, Comparative Advantage, and Resource Allocation

Melise Jaud (), Madina Kukenova and Martin Strieborny

No 130, FIW Working Paper series from FIW

Abstract: We 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. Our 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.

Keywords: resource misallocation; finance; comparative advantage; export survival (search for similar items in EconPapers)
JEL-codes: F11 G21 G30 O16 (search for similar items in EconPapers)
New Economics Papers: this item is included in nep-int
Date: 2014-02
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