Finance, Comparative Advantage, and Resource Allocation

Research output: Contribution to journalArticle

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.

Details

Authors
Organisations
External organisations
  • University of Lausanne
  • Business School Lausanne
Research areas and keywords

Subject classification (UKÄ) – MANDATORY

  • Business Administration

Keywords

  • disciplining role of finance, export survival, product and financial markets, F11, G21, G30, O16
Original languageEnglish
Pages (from-to)1011-1061
JournalReview of Finance
Volume22
Issue number3
Early online date2017 Oct 12
Publication statusPublished - 2018 May 1
Publication categoryResearch
Peer-reviewedYes