Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage

43 Pages Posted: 11 Dec 2018 Last revised: 17 Dec 2018

See all articles by Christian Keuschnigg

Christian Keuschnigg

University of St. Gallen – Department of Economics (FGN-HSG); CESifo (Center for Economic Studies and Ifo Institute); Centre for Economic Policy Research (CEPR)

Michael Kogler

University of St. Gallen

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Date Written: December 2018

Abstract

Trade and innovation cause structural change. Productive factors must flow from declining to growing industries. Banks play a major role in cutting credit to non-viable firms in downsizing sectors and in providing new credit to finance investment in expanding, innovative sectors. Structural parameters of a country's banking system thus influence comparative advantage and trade, and can magnify the gains from trade liberalization. The analysis shows how insolvency laws, minimum capital standards, and cost of bank equity determine credit reallocation, sectoral expansion and trade patterns.

Keywords: Banking, capital reallocation, comparative advantage, Trade

JEL Classification: F10, G21, G28

Suggested Citation

Keuschnigg, Christian and Kogler, Michael, Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage (December 2018). CEPR Discussion Paper No. DP13375, Available at SSRN: https://ssrn.com/abstract=3298791

Christian Keuschnigg (Contact Author)

University of St. Gallen – Department of Economics (FGN-HSG) ( email )

Varnbuelstrasse 19
St. Gallen, 9000
Switzerland

CESifo (Center for Economic Studies and Ifo Institute)

Poschinger Str. 5
Munich, DE-81679
Germany

Centre for Economic Policy Research (CEPR)

London
United Kingdom

Michael Kogler

University of St. Gallen ( email )

Langgasse 1
St. Gallen, 9008
Switzerland

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