Purpose The purpose of this paper is to argue that financial development, measured by private credit in the economy, affects exports in an inverted U-shaped manner. The authors use the new trade theory model and empirical data to analyze whether the financial system is the reason of global imbalance. Design/methodology/approach This paper builds a simple production model to connect financial development with a country’s export or outward foreign direct investment (ODI) decision. Using a panel data covering 108 countries for the period 1990-2011, the authors find strong evidence to show that when a country is at a lower financial development level, further advancements of its financial system will boost exports. Findings First, an inverted U-shaped relationship between exports, imports and financial development is found in the study of 108 countries over the period 1990-2011; second, ODI provides a substitute effect to exports for financially advanced countries. These findings have provided an alternative explanation to international trade imbalances and contribute constructively to the discussion regarding whether exports and financial development are positively related or not. Originality/value As a result, the findings shed some light on the issue of global current account imbalances between developing and developed countries from a new perspective.

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Subject area E-Business; Corporate Strategy; Strategic Management; Operation Management. Study level/applicability Senior undergraduate; MBA; EMBA. Case overview After development for 10 years, JD was now China’s second largest business-to-customer (B2C) e-retailer and the largest in self-operated sector. It was September 2015 when Liu Qiangdong was deciding whether to persist with JD’s self-operated model and the heavy investment in the self-built logistics system. JD’s business model had been functioning well. However, as JD grew bigger and bigger, it became too expensive to expand its logistics system. JD had not made a profit since it raised funds from investors. Liu had to come up with a good proposal before the next monthly meeting to convince them that JD would finally overtake its biggest rival, Alibaba which ran on a different business model. In addition, JD was exploiting the rural and the global markets, as well as a new business in internet finance. Facing challenges and dilemmas, should JD persist with its model? How could Liu align short-term profitability with long-run development? How could JD overcome attacks from Alibaba and other competitors? Expected learning outcomes This case is appropriate for courses in e-business and strategy, particularly those with a strong focus on doing e-business in emerging markets (e.g. China). After studying the case, students should be able to: understand the e-commerce market in China; understand business models and key strategies of e-retailers; identify and analyse the pros and cons of the self-operated business model and self-built logistics system in e-commerce; learn how to evaluate performance, strategies and business models of e-commerce companies; and extract key trends in the market and compare different strategies. Supplementary materials Teaching notes are available for educators only. Please contact your library to gain login details or email support@emeraldinsight.com to request teaching notes. Subject code: CSS 11: Strategy.

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