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A Provincial View of Capital Mobility

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  • Tamim Bayoumi
  • Michael W. Klein

Abstract

This paper develops a method of testing for zones of financial integration based upon intertemporal considerations and applies it to data on Canadian provincial trade. In a financially-integrated region individuals smooth consumption with respect to movements in aggregate income. Consumption in that region follows income in that region if individuals use only regional capital markets while consumption follows movements in income in broader regions (e.g. national income or world income) if individuals have access to and use capital markets in those broader regions (e.g. the national or global capital markets, respectively). We derive a specification which measures the impact of differential levels of access to capital markets--different zones of capital mobility--on the relationship between the regional trade balance and regional, national and global income. This empirical specification is tested using data on trade balances across Canadian provinces. The results indicate full capital mobility within Canada but only partial capital mobility between Canada and the rest of the world.

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Bibliographic Info

Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 5115.

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Date of creation: May 1995
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Publication status: published as International Monetary Fund Staff Papers, Vol. 44, no. 4 (December 1997): 534-556.
Handle: RePEc:nbr:nberwo:5115

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References

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  1. Charles Engel & John H. Rogers, 1994. "How Wide is the Border?," NBER Working Papers 4829, National Bureau of Economic Research, Inc.
  2. Olivier Jean Blanchard & Lawrence F. Katz, 1992. "Regional Evolutions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 23(1), pages 1-76.
  3. Glick, Reuven & Rogoff, Kenneth, 1995. "Global versus country-specific productivity shocks and the current account," Journal of Monetary Economics, Elsevier, vol. 35(1), pages 159-192, February.
  4. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, vol. 94(3), pages 564-94, June.
  5. Ronald MacDonald & Tamim Bayoumi, 1994. "Consumption, Income, and International Capital Market Integration," IMF Working Papers 94/120, International Monetary Fund.
  6. repec:fth:calaec:16-92 is not listed on IDEAS
  7. Maurice Obstfeld, 1994. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  8. Obstfeld, Maurice & Rogoff, Kenneth, 1995. "The intertemporal approach to the current account," Handbook of International Economics, in: G. M. Grossman & K. Rogoff (ed.), Handbook of International Economics, edition 1, volume 3, chapter 34, pages 1731-1799 Elsevier.
  9. Robert J. Barro & Xavier Sala-i-Martin, 1991. "Convergence across States and Regions," Brookings Papers on Economic Activity, Economic Studies Program, The Brookings Institution, vol. 22(1), pages 107-182.
  10. Bayoumi, Tamim A. & Rose, Andrew K., 1993. "Domestic savings and intra-national capital flows," European Economic Review, Elsevier, vol. 37(6), pages 1197-1202, August.
  11. Barro, Robert J & Sala-i-Martin, Xavier, 1992. "Convergence," Journal of Political Economy, University of Chicago Press, vol. 100(2), pages 223-51, April.
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Cited by:
  1. Slavov, Slavi T., 2009. "Do common currencies facilitate the net flow of capital among countries?," The North American Journal of Economics and Finance, Elsevier, vol. 20(2), pages 124-144, August.
  2. Palle Andersen & David Gruen, 1995. "Macroeconomic Policies and Growth," RBA Research Discussion Papers rdp9507, Reserve Bank of Australia.
  3. Marco Del Negro, 2000. "Asymmetric shocks among U.S. states," Working Paper 2000-27, Federal Reserve Bank of Atlanta.
  4. World Bank, 2005. "China : Integration of National Product and Factor Markets, Economic Benefits and Policy Recommendations," World Bank Other Operational Studies 8690, The World Bank.
  5. Lafrance, Robert & St-Amant, Pierre, 2000. "Les zones monétaires optimales," L'Actualité Economique, Société Canadienne de Science Economique, vol. 76(4), pages 577-612, décembre.
  6. George Furstenberg, 1998. "From Worldwide Capital Mobility to International Financial Integration: A Review Essay," Open Economies Review, Springer, vol. 9(1), pages 53-84, January.
  7. John F. Helliwell, 1996. "Do National Borders Matter for Quebec's Trade?," Canadian Journal of Economics, Canadian Economics Association, vol. 29(3), pages 507-22, August.
  8. Michael Smith, 2001. "What have the FTA and the NAFTA done to the Canadian labor market?," Forum for Social Economics, Springer, vol. 30(2), pages 25-50, March.
  9. Zahir, Antia & Djoudad, Ramdane & St-Amant, Pierre, 1999. "Canada’s Exchange Rate Regime and North American Economic Integration: The Role of Risk-Sharing Mechanisms," Working Papers 99-17, Bank of Canada.

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