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On the hidden links between financial and trade opening

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Listed author(s):
  • Aizenman, Joshua

Abstract

Developing countries characterized by high costs of tax collection and enforcement opt to use financial repression as an implicit tax on savings, providing the impetus for capital flight. A mechanism facilitating illicit capital movements is trade misinvoicing, where the effectiveness of capital controls would increase with the resources spent on monitoring and enforcement per one dollar of international trade. Under these circumstances, greater trade openness increases the effective cost of enforcing financial repression, thereby reducing the usefulness of financial repression as an implicit tax. This in turn implies that financial reforms tend to be the by-product of greater trade integration.

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File URL: http://www.sciencedirect.com/science/article/pii/S0261-5606(08)00013-2
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Article provided by Elsevier in its journal Journal of International Money and Finance.

Volume (Year): 27 (2008)
Issue (Month): 3 (April)
Pages: 372-386

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Handle: RePEc:eee:jimfin:v:27:y:2008:i:3:p:372-386
Contact details of provider: Web page: http://www.elsevier.com/locate/inca/30443

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Find related papers by JEL classification:
  • F15 - International Economics - - Trade - - - Economic Integration
  • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements

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