City Research Online

Financial System Architecture and the Patterns of International Trade

Amissah, E., Bougheas, S., Defever, F. ORCID: 0000-0001-6462-0522 & Falvey, R. (2021). Financial System Architecture and the Patterns of International Trade. European Economic Review, 136, article number 103751. doi: 10.1016/j.euroecorev.2021.103751


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.

Publication Type: Article
Additional Information: © 2021. This manuscript version is made available under the CC-BY-NC-ND 4.0 license
Publisher Keywords: Financial Systems, Trade Patterns, Banks, Direct Finance
Subjects: H Social Sciences > HG Finance
J Political Science > JZ International relations
Departments: School of Policy & Global Affairs > Economics
SWORD Depositor:
[thumbnail of ABDF EER 2nd REV May2021.pdf]
Text - Accepted Version
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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