Financial development and international trade: Is there a link? |
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Authors: | Thorsten Beck |
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Institution: | The World Bank, Mail Stop Number MC 3-300, 1818 High Street NW, Washington, DC 20433, USA |
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Abstract: | This paper explores a possible link between financial development and trade in manufactures. The theoretical model focuses on the role of financial intermediaries in facilitating large-scale, high-return projects and shows that economies with better-developed financial sectors have a comparative advantage in manufacturing industries. We provide evidence for this hypothesis, first proposed by Kletzer and Bardhan (Journal of Development Economics 1987;27:57-70), using a 30-year panel for 65 countries. Controlling for country-specific effects and possible reverse causality, we show that financial development exerts a large causal impact on the level of both exports and the trade balance of manufactured goods. |
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Keywords: | International trade Scale economies Financial development |
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