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Understanding International Differences in Trade and Capital Market Integration

Author

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  • Sebastián Claro

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

International integration in capital markets raises the cost of capital in technology-backward countries, pushing them toward specialization in labor-intensive industries. To avoid specialization and to sustain production of capital-intensive industries, governments either impose tari.s or limit the degree of capital market integration. The idea that trade and capital market distortions are substitutes is apparently contradicted by the empirical evidence, that shows that countries with more open trade regimes are also more integrated to world capital markets. However, after controlling for international productivity and factor endowment di.erences, I find a negative association between trade and capital market integration, as predicted by the model.

Suggested Citation

  • Sebastián Claro, 2005. "Understanding International Differences in Trade and Capital Market Integration," Documentos de Trabajo 285, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:285
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-285.pdf
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    References listed on IDEAS

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    Cited by:

    1. Sebastián Claro, 2003. "Labor Market Implications of Limited Integration," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 434-440.

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    More about this item

    Keywords

    Tariffs; capital markets; technology differences; international factor price differences;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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