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Access to credit and comparative advantage

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  • Peter H. Egger
  • Christian Keuschnigg
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 three 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 financing 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, a small degree of protection in the constrained sector can raise a country's welfare by relaxing financing constraints if terms-of-trade effects are small. Third, a small degree of protection of the financially dependent industry in a financially underdeveloped country might even raise world welfare.

Suggested Citation

  • Peter H. Egger & Christian Keuschnigg, 2017. "Access to credit and comparative advantage," Canadian Journal of Economics, Canadian Economics Association, vol. 50(2), pages 481-505, May.
  • Handle: RePEc:cje:issued:v:50:y:2017:i:2:p:481-505
    DOI: 10.1111/caje.12266
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    Cited by:

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    2. Binglin Gong & Haiwen Zhou, 2023. "The choice of technology and international trade," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 32(7), pages 1035-1057, October.
    3. Eppinger, Peter & Smolka, Marcel, 2015. "Firm Exports, Foreign Ownership, and the Global Financial Crisis," VfS Annual Conference 2015 (Muenster): Economic Development - Theory and Policy 113039, Verein für Socialpolitik / German Economic Association.
    4. Christian Keuschnigg & Michael Kogler, 2022. "Trade and credit reallocation: How banks help shape comparative advantage," Review of International Economics, Wiley Blackwell, vol. 30(1), pages 282-305, February.
    5. Chen, Minjia & Matousek, Roman, 2020. "Do productive firms get external finance? Evidence from Chinese listed manufacturing firms," International Review of Financial Analysis, Elsevier, vol. 67(C).
    6. Robert C. Feenstra & Zhiyuan Li & Miaojie Yu, 2014. "Exports and Credit Constraints under Incomplete Information: Theory and Evidence from China," The Review of Economics and Statistics, MIT Press, vol. 96(4), pages 729-744, October.

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    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade

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