Scandinavian Working Papers in Economics

Working Papers,
Lund University, Department of Economics

No 2013:13: Finance, Comparative Advantage, and Resource Allocation

Melise Jaud (), Madina Kukenova () and Martin Strieborny ()
Additional contact information
Melise Jaud: Paris School of Economics and World Bank
Madina Kukenova: University of Lausanne
Martin Strieborny: Department of Economics, Lund University, Postal: Department of Economics, School of Economics and Management, Lund University, Box 7082, S-220 07 Lund, Sweden

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; …nance; comparative advantage; export survival

JEL-codes: F11; G21; G30; O16

36 pages, April 22, 2013

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WP13_13.pdf PDF-file 

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