Citation

Discussion Paper Details

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Title: Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage

Author(s): Christian Keuschnigg and Michael Kogler

Publication Date: December 2018

Keyword(s): Banking, capital reallocation, comparative advantage and Trade

Programme Area(s): International Trade and Regional Economics and Public Economics

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.

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Bibliographic Reference

Keuschnigg, C and Kogler, M. 2018. 'Trade and Credit Reallocation: How Banks Help Shape Comparative Advantage'. London, Centre for Economic Policy Research. https://cepr.org/active/publications/discussion_papers/dp.php?dpno=13375