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Global Diversification, Growth, and Welfare with Imperfectly Integrated Markets for Goods

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  • Dumas, Bernard
  • Uppal, Raman

Abstract

In this article we examine the effect of the imperfect mobility of goods on international risk sharing and, through that, on the investment in risky projects, welfare, and growth. Our main result is that the welfare gain from integration of financial markets is not greatly reduced by the presence of goods market imperfections, modeled as a cost of transferring goods from one country to the other. We also find that the gain is nonmonotonic with respect to investors' risk aversion and the aggregate volatility of output growth. The policy implication to be drawn is that financial market integration is a worthwhile goal to pursue even when full goods mobility has not been achieved. Article published by Oxford University Press on behalf of the Society for Financial Studies in its journal, The Review of Financial Studies.

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Bibliographic Info

Article provided by Society for Financial Studies in its journal Review of Financial Studies.

Volume (Year): 14 (2001)
Issue (Month): 1 ()
Pages: 277-305

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Handle: RePEc:oup:rfinst:v:14:y:2001:i:1:p:277-305

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References

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  1. Alan C. Stockman, 1987. "Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries," NBER Working Papers 2313, National Bureau of Economic Research, Inc.
  2. Wheatley, Simon, 1988. "Some tests of international equity integration," Journal of Financial Economics, Elsevier, Elsevier, vol. 21(2), pages 177-212, September.
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Cited by:
  1. Egil Matsen, 2005. "International diversification, growth, and welfare with non-traded income risk and incomplete markets," Applied Financial Economics, Taylor & Francis Journals, Taylor & Francis Journals, vol. 15(15), pages 1063-1072.
  2. Buss, Adrian & Uppal, Raman & Vilkov, Grigory, 2014. "Asset prices in general equilibrium with recursive utility and illiquidity induced by transactions costs," SAFE Working Paper Series 41, Research Center SAFE - Sustainable Architecture for Finance in Europe, Goethe University Frankfurt.
  3. Chambet, Anthony & Gibson, Rajna, 2008. "Financial integration, economic instability and trade structure in emerging markets," Journal of International Money and Finance, Elsevier, Elsevier, vol. 27(4), pages 654-675, June.
  4. Egil Matsen, 2001. "Habit Persistence and Welfare Gains from International Asset Trade," Working Paper Series, Department of Economics, Norwegian University of Science and Technology 0102, Department of Economics, Norwegian University of Science and Technology.
  5. Basak, Suleyman & Croitoru, Benjamin, 2007. "International good market segmentation and financial innovation," Journal of International Economics, Elsevier, vol. 71(2), pages 267-293, April.
  6. Basak, Suleyman & Croitoru, Benjamin, 2003. "International Good Market Segmentation and Financial Market Structure," CEPR Discussion Papers, C.E.P.R. Discussion Papers 4060, C.E.P.R. Discussion Papers.
  7. Soumare, Issouf, 2007. "International capital markets and redundant securities," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 31(3), pages 1037-1050, March.
  8. Timothy K. Chue, 2004. "The Spirit of Capitalism and International Risk Sharing," Econometric Society 2004 Far Eastern Meetings, Econometric Society 589, Econometric Society.
  9. Bhamra, Harjoat S. & Uppal, Raman, 2006. "The role of risk aversion and intertemporal substitution in dynamic consumption-portfolio choice with recursive utility," Journal of Economic Dynamics and Control, Elsevier, Elsevier, vol. 30(6), pages 967-991, June.
  10. Khang Min Lee, 2002. "Optimal Financial Markets Liberalization," Departmental Working Papers, National University of Singapore, Department of Economics wp0202, National University of Singapore, Department of Economics.
  11. Angel Serrat, 2001. "A Dynamic Equilibrium Model of International Portfolio Holdings," Econometrica, Econometric Society, Econometric Society, vol. 69(6), pages 1467-1489, November.

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