Finance, Comparative Advantage, and Resource Allocation

The authors 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 hig...

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Bibliographic Details
Main Authors:	Jaud, Melise, Kukenova, Madina, Strieborny, Martin
Format:	Policy Research Working Paper
Language:	English en_US
Published:	World Bank, Washington, DC 2014
Subjects:	ALLOCATION OF CAPITAL BANK CREDIT BANK CREDITS BANK LENDING BANKING SECTOR BANKING SYSTEM BANKRUPTCY BANKRUPTCY PROCEDURE BANKS BILATERAL TRADE BONDS BUSINESS CYCLE CAPITAL EXPENDITURES CAPITAL MARKET CAPITALIZATION CASH FLOW CHECKS COMMERCE COMPARATIVE ADVANTAGE COMPETITIVE PRODUCT COMPETITIVE PRODUCTS CORPORATE BONDS CORPORATE FINANCE CORPORATE GOVERNANCE CREDIT CONSTRAINTS DEBT DEBT SERVICE DEBT SERVICE PAYMENTS DEPENDENT VARIABLE DEVELOPED COUNTRIES DEVELOPING COUNTRIES DEVELOPMENT ECONOMICS DEVELOPMENT POLICY DOMESTIC BANK DOMESTIC BANKING DUMMY VARIABLE ECONOMIC DEVELOPMENT ECONOMIC GROWTH ECONOMIC REVIEW ECONOMIC STUDIES ECONOMIC SYSTEMS EMPIRICAL ANALYSIS EMPIRICAL EVIDENCE EMPIRICAL RESULTS EMPLOYMENT EQUAL WEIGHTS EQUALIZATION EXPENDITURES EXPLANATORY VARIABLES EXPORT GROWTH EXPORT PERFORMANCE EXPORT SHARES EXPORTER EXPORTERS EXPORTS EXTERNAL DEBT FACTOR ENDOWMENTS FACTOR PRICE FACTOR PRICES FINANCIAL DEVELOPMENT FINANCIAL MARKETS FOREIGN COMPETITION FOREIGN MARKET FOREIGN MARKETS GDP GDP PER CAPITA GOVERNMENT INTERVENTION GOVERNMENT INTERVENTIONS GOVERNMENT SUBSIDIES GROWTH THEORY HIGH CORRELATION HUMAN CAPITAL INTERNATIONAL BANK INTERNATIONAL ECONOMICS INTERNATIONAL TRADE INVENTORY LEGAL SYSTEM LIQUIDITY LONG-TERM RESOURCE MARGINAL PRODUCTS MARKET IMPERFECTIONS MARKETING MEMBER COUNTRIES MINORITY INVESTORS NATIONAL BANK OF BELGIUM NEGATIVE IMPACT NEGATIVE SIGN 0 HYPOTHESIS POLICY DISCUSSIONS POLICY IMPLICATIONS POLICY RESEARCH POSITIVE IMPACT PRESENT VALUE PRIVATE CREDIT PRIVATE SECTOR PRODUCT MARKET PRODUCT MARKETS PUBLIC RELATIONS RATES OF RETURNS RESOURCE ALLOCATION SHAREHOLDERS SKEWED DISTRIBUTION STOCK MARKET STOCK MARKET CAPITALIZATION STOCK MARKETS SUBSTITUTE TOTAL FACTOR PRODUCTIVITY TRADE FLOWS TRADE LIBERALIZATION TRADING VALUE ADDED WAGES WORLD MARKET
Online Access:	http://documents.worldbank.org/curated/en/2012/06/16448089/finance-comparative-advantage-resource-allocation http://hdl.handle.net/10986/19930

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Summary:	The authors 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. The 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.

Finance, Comparative Advantage, and Resource Allocation

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