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History, Gravity and International Finance

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  • Livia Chițu
  • Barry Eichengreen
  • Arnaud J. Mehl

Abstract

We analyze patterns of bilateral financial investment using data on US investors' holdings of foreign bonds. We document a "history effect" in which the pattern of holdings seven decades ago continues to influence holdings today. 10 to 15% of the cross-country variation in US investors' foreign bond holdings is explained by holdings 70 years ago, plausibly reflecting fixed costs of market entry and exit together with endogenous learning. This effect is twice as large for bonds denominated in currencies other than the dollar, suggesting the existence of even higher fixed costs of initiating US foreign investment in such currencies. Our findings point to history and path dependence as key sources of financial market segmentation.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18697.

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Date of creation: Jan 2013
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Publication status: published as Chiţu, Livia & Eichengreen, Barry & Mehl, Arnaud, 2014. "History, gravity and international finance," Journal of International Money and Finance, Elsevier, vol. 46(C), pages 104-129.
Handle: RePEc:nbr:nberwo:18697

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Blog mentions

As found by EconAcademics.org, the blog aggregator for Economics research:
  1. History matters: even in very deep and heavily traded markets
    by Nicholas Gruen in Club Troppo on 2013-01-21 12:42:30
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Cited by:
  1. repec:idb:brikps:81941 is not listed on IDEAS
  2. Maurice Kugler & Oren Levintal & Hillel Rapoport, 2013. "Migration and Cross-Border Financial Flows," Working Papers, Bar-Ilan University, Department of Economics 2013-05, Bar-Ilan University, Department of Economics.
  3. Owsiński, Jan W. & Pielak, Aneta M. & Sęp, Krzysztof, 2013. "Smartness, culture and local authority ICT awareness: an empirical enquiry for a province in Poland," Studies in Agricultural Economics, Research Institute for Agricultural Economics, Research Institute for Agricultural Economics, vol. 115(2), June.

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