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The impact of financial market imperfections on trade and capital flows

Author

Listed:
  • Spiros Bougheas

    (University of Nottingham)

  • Rod Falvey

    (University of Nottingham)

Abstract

We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in sectors where finance is important. Capital flows and international trade are complements when countries differ in the degree of development of their financial sectors. Capital flows to countries with more robust financial institutions which in turn allow their economies to develop sectors that are financially dependent.

Suggested Citation

  • Spiros Bougheas & Rod Falvey, 2009. "The impact of financial market imperfections on trade and capital flows," EconoQuantum, Revista de Economia y Finanzas, Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia., vol. 6(1), pages 91-110, Julio - D.
    • Handle: RePEc:qua:journl:v:6:y:2009:i:1:p:91-110
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    References listed on IDEAS

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    More about this item

    Keywords

    trade flows; capital flows; financial frictions.;
    All these keywords.

    JEL classification:

    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets

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