Financial System Architecture and the Patterns of International Trade

Falvey, Rod; Defever, Fabrice; Bougheas, Spiros; Amissah, Emmanuel

Abstract

Countries differ in the extent to which their financial systems rely on banks or on financial markets. We offer a model featuring a complex relationship between countries’ financial system architecture and their comparative advantage. Countries with capital markets that are relatively more efficient than their banking systems gain comparative advantage in sectors with strong dependence on market finance. Moreover, countries specialising in sectors that depend on market finance develop their capital markets more than their banking systems. To empirically investigate these links, we construct a measure of sector bank dependence and establish a bi-directional relationship between countries’ comparative advantage and their financial systems architecture.

Citation

Falvey, R., Defever, F., Bougheas, S., & Amissah, E. (2021). Financial System Architecture and the Patterns of International Trade. European Economic Review, 136, Article 103751. https://doi.org/10.1016/j.euroecorev.2021.103751

• Journal Article Type: Article
• Acceptance Date: Apr 27, 2021
• Online Publication Date: May 25, 2021
• Publication Date: 2021-07
• Deposit Date: Apr 28, 2021
• Publicly Available Date: May 26, 2023
• Journal: European Economic Review
• Print ISSN: 0014-2921
• Peer Reviewed: Peer Reviewed
• Volume: 136
• Article Number: 103751
• DOI: https://doi.org/10.1016/j.euroecorev.2021.103751
• Keywords: Financial Systems, Trade Patterns, Banks, Direct Finance
• Public URL: https://nottingham-repository.worktribe.com/output/5498219
• Publisher URL: https://www.sciencedirect.com/science/article/abs/pii/S0014292121001045