Bilateral Trade, Openness and Asset Holdings
AbstractThis paper analyzes the relationship between bilateral trade flows, trade openness, and asset holdings in a three-country stochastic general equilibrium model. The threecountry model set-up enables me to disentangle and separate the effects bilateral trade flows and trade openness have on bilateral portfolio patterns. I find that both factors independently influence bilateral asset holdings. Higher bilateral trade as well as higher trade openness lead to a higher bilateral foreign asset position. Furthermore, the two factors show an interaction effect, where increasing trade openness diminishes the influence of bilateral trade flows on asset holdings. I provide supporting empirical evidence for these theoretical findings using a data set on the geographical composition of international portfolio holdings.
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Bibliographic InfoPaper provided by University of Bonn, Germany in its series Bonn Econ Discussion Papers with number bgse21_2010.
Date of creation: Dec 2010
Date of revision:
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International Portfolio Holdings; Bilateral Trade Flows; Trade Openness;
Find related papers by JEL classification:
- F10 - International Economics - - Trade - - - General
- F30 - International Economics - - International Finance - - - General
- F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
This paper has been announced in the following NEP Reports:
- NEP-ALL-2010-12-11 (All new papers)
- NEP-IFN-2010-12-11 (International Finance)
- NEP-INT-2010-12-11 (International Trade)
- NEP-OPM-2010-12-11 (Open Economy Macroeconomic)
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