Access to Credit and Comparative Advantage
Type
discussion paper
Date Issued
2011-01-20
Author(s)
Abstract
Access to external funds is crucial for the entry and expansion of entrepreneurial firms and the sectors they predominantly arise in. This paper reports four important results. First, comparative advantage is shaped by factor endowments as well as fundamental determinants of corporate finance. In particular, a larger equity ratio of firms and tough governance standards relax finance constraints, lead to entry of firms at the lower bound of the productivity distribution, and create an endogenous comparative advantage in sectors where entrepreneurial firms are clustered. Second, in such a setting, factor price equalization does not only depend on technological characteristics of goods production but also of financial intermediation. Third, a small degree of trade protection in the constrained sector can raise a country's welfare by relaxing
finance constraints if terms of trade effects are small. Fourth, a small degree of protection of the financially dependent industry in a financially underdeveloped country might even raise world welfare
finance constraints if terms of trade effects are small. Fourth, a small degree of protection of the financially dependent industry in a financially underdeveloped country might even raise world welfare
Language
English
Keywords
Finance constraints
comparative advantage
protection.
HSG Classification
contribution to scientific community
Refereed
No
Start page
1
End page
39
Pages
39
Subject(s)
Eprints ID
51206
File(s)![Thumbnail Image]()
open.access
Name
CompAdvFinance2011Jan20.pdf
Size
360.5 KB
Format
Adobe PDF
Checksum (MD5)
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