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Financial System Architecture and the Patterns of International Trade

Amissah, E., Bougheas, S., Defever, F. ORCID: 0000-0001-6462-0522 and Falvey, R. (2021). Financial System Architecture and the Patterns of International Trade. European Economic Review, 136, 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 Arts & Social Sciences > Economics
Date available in CRO: 27 May 2021 13:33
Date deposited: 27 May 2021
Date of acceptance: 26 April 2021
Date of first online publication: 25 May 2021
[img] Text - Accepted Version
This document is not freely accessible until 25 May 2023 due to copyright restrictions.
Available under License Creative Commons Attribution Non-commercial No Derivatives.

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