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Understanding International Differences in Trade and Capital Market Integration

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Author Info

  • 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.

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Bibliographic Info

Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 285.

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Date of creation: 2005
Date of revision:
Handle: RePEc:ioe:doctra:285

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Related research

Keywords: Tariffs; capital markets; technology differences; international factor price differences;

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References

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  1. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-29, June.
  2. Joshua Aizenman, 2003. "On the Hidden Links Between Financial and Trade Opening," NBER Working Papers 9906, National Bureau of Economic Research, Inc.
  3. Sebastián Claro, 2003. "A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(120), pages 239-257.
  4. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
  5. Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
  6. Sebastian Edwards, 1989. "On the Sequencing of Structural Reforms," OECD Economics Department Working Papers 70, OECD Publishing.
  7. Edwards, Sebastian & van Wijnbergen, Sweder, 1986. "The Welfare Effects of Trade and Capital Market Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 141-48, February.
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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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