History, Gravity and International Finance
AbstractWe 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 InfoPaper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 18697.
Date of creation: Jan 2013
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Other versions of this item:
- F30 - International Economics - - International Finance - - - General
- N20 - Economic History - - Financial Markets and Institutions - - - General, International, or Comparative
This paper has been announced in the following NEP Reports:
- NEP-ALL-2013-01-19 (All new papers)
- NEP-HIS-2013-01-19 (Business, Economic & Financial History)
- NEP-MON-2013-01-19 (Monetary Economics)
- NEP-OPM-2013-01-19 (Open Economy Macroeconomic)
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