Finance, Comparative Advantage, and Resource Allocation
54 Pages Posted: 19 Mar 2011 Last revised: 18 Jul 2019
There are 3 versions of this paper
Finance, Comparative Advantage, and Resource Allocation
Finance, Comparative Advantage, and Resource Allocation
Finance, Comparative Advantage, and Resource Allocation
Date Written: July 28, 2017
Abstract
Can financial institutions and markets enhance the discipline imposed by competitive product markets and thus improve resource allocation in the real economy? We address this question in the context of international trade, using disaggregated product-level data from 71 countries exporting to the USA. We show that exported products exit the US market sooner if they stand far away from the exporting country's comparative advantage. This pattern is stronger when the exporting country has a well-developed banking system, but it is unaffected by the depth of stock markets. These results are in accordance with theories stressing the disciplining role of debt and monitoring abilities of banks.
Keywords: disciplining role of finance, product and financial markets, export survival
JEL Classification: G21, G30, F11, O16
Suggested Citation: Suggested Citation
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