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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, 1995. "How wide is the border?," Research Working Paper, Federal Reserve Bank of Kansas City 95-09, Federal Reserve Bank of Kansas City.
  2. Barro, R.J. & Sala-I-Martin, X., 1991. "Convergence Across States and Regions," Papers, Yale - Economic Growth Center 629, Yale - Economic Growth Center.
  3. Maurice Obstfeld & Kenneth Rogoff, 1994. "The Intertemporal Approach to the Current Account," NBER Working Papers 4893, National Bureau of Economic Research, Inc.
  4. Maurice Obstfeld, 1994. "Are Industrial-Country Consumption Risks Globally Diversified?," NBER Working Papers 4308, National Bureau of Economic Research, Inc.
  5. 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.
  6. 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.
  7. Bayoumi, Tamim, 1994. "Consumption, Income, and International Capital Market Integration," CEPR Discussion Papers 1028, C.E.P.R. Discussion Papers.
  8. Frenkel, Jacob A & Razin, Assaf, 1986. "Fiscal Policies in the World Economy," Journal of Political Economy, University of Chicago Press, University of Chicago Press, vol. 94(3), pages 564-94, June.
  9. 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.
  10. repec:fth:calaec:16-92 is not listed on IDEAS
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Cited by:
  1. 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.
  2. Marco Del Negro, 1999. "Asymmetric shocks among U.S. states," Working Papers 9903, Centro de Investigacion Economica, ITAM.
  3. 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.
  4. 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.
  5. 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.
  6. Palle Andersen & David Gruen, 1995. "Macroeconomic Policies and Growth," RBA Annual Conference Volume, in: Palle Andersen & Jacqueline Dwyer & David Gruen (ed.), Productivity and Growth Reserve Bank of Australia.
  7. 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.
  8. 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.
  9. Lafrance, Robert & St-Amant, Pierre, 2000. "Les zones monétaires optimales," L'Actualité Economique, Société Canadienne de Science Economique, Société Canadienne de Science Economique, vol. 76(4), pages 577-612, décembre.

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