Scandinavian Working Papers in Economics

Research Papers in Economics,
Stockholm University, Department of Economics

No 2002:6: Financial Markets, Industrial Specialization and Comparative Advantage - Evidence from OECD Countries

Helena Svaleryd and Jonas Vlachos ()
Additional contact information
Helena Svaleryd: Dept. of Economics, Stockholm University, Postal: Department of Economics, Stockholm University, S-106 91 Stockholm, Sweden
Jonas Vlachos: Department of Economics, Stockholm School of Economics, Postal: Department of Economics, Stockholm School of Economics, P. O. Box 6501, S-113 83 Stockholm, Sweden

Abstract: Due to underlying technological and organizational differences, industries differ in their need for external finance. Since services provided by the financial sector are largely immobile across countries, the pattern of industrial specialization should be influenced by the degree of financial development. We find this effect to be strong. In fact, the financial sector has greater impact on industrial specialization among OECD countries than differences in human and physical capital. We also show that the causality indeed run from the financial sector to specialization. Further, financial sectors are a source of comparative advantage in a way consistent with the Hecksher-Ohlin-Vanek model. Results on which aspects of financial systems that are of importance for specialization and comparative advantage are also presented.

Keywords: Financial intermediation; Financial systems; Specialization patterns; Financial intermediation; Financial systems; Specialization patterns; Comparative advantage

JEL-codes: F14; G20; O16

43 pages, June 13, 2002

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