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Goods and Asset Market Interdependence in a Risky World


  • Feeney, JoAnne


This paper explores the link between international asset markets and international trade in goods to determine whether trade along these dimensions tends to be complementary or plays the role of substitutes. International financial markets permit agents in different countries to pool away the idiosyncratic portion of risk, while in the absence of international financial markets, countries will pursue other means to insure against unanticipated disturbances. The author shows that the endogeny of resource allocations to market completeness leads to a relationship of complementarity between trade in goods and trade in assets. Copyright 1994 by Economics Department of the University of Pennsylvania and the Osaka University Institute of Social and Economic Research Association.

Suggested Citation

  • Feeney, JoAnne, 1994. "Goods and Asset Market Interdependence in a Risky World," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 35(3), pages 551-563, August.
  • Handle: RePEc:ier:iecrev:v:35:y:1994:i:3:p:551-63

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    References listed on IDEAS

    1. Alogoskoufis, George S, 1992. "Monetary Accommodation, Exchange Rate Regimes and Inflation Persistence," Economic Journal, Royal Economic Society, vol. 102(412), pages 461-480, May.
    2. Svensson, Lars E. O., 1991. "Target zones and interest rate variability," Journal of International Economics, Elsevier, vol. 31(1-2), pages 27-54, August.
    3. Miller, Marcus & Weller, Paul, 1991. "Exchange Rate Bands with Price Inertia," Economic Journal, Royal Economic Society, vol. 101(409), pages 1380-1399, November.
    4. Sutherland, Alan, 1995. "Monetary and real shocks and the optimal target zone," European Economic Review, Elsevier, vol. 39(1), pages 161-172, January.
    5. Paul R. Krugman, 1991. "Target Zones and Exchange Rate Dynamics," The Quarterly Journal of Economics, Oxford University Press, vol. 106(3), pages 669-682.
    6. Bertola, Giuseppe & Caballero, Ricardo J, 1992. "Target Zones and Realignments," American Economic Review, American Economic Association, vol. 82(3), pages 520-536, June.
    7. Froot, Kenneth A. & Obstfeld, Maurice, 1991. "Exchange-rate dynamics under stochastic regime shifts : A unified approach," Journal of International Economics, Elsevier, vol. 31(3-4), pages 203-229, November.
    8. Beetsma, R.M.W.J. & van der Ploeg, F., 1992. "Exchange rate bands and optimal monetary accomodation under a dirty float," Discussion Paper 1992-13, Tilburg University, Center for Economic Research.
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    Cited by:

    1. Muhsin KAR & Saban NAZLIOGLU & Huseyin AGIR, 2014. "Trade Openness, Financial Development, and Economic Growth in Turkey: Linear and Nonlinear Causality Analysis," Journal of BRSA Banking and Financial Markets, Banking Regulation and Supervision Agency, vol. 8(1), pages 63-86.
    2. Feeney, JoAnne & Hillman, Arye L., 2004. "Trade liberalization through asset markets," Journal of International Economics, Elsevier, vol. 64(1), pages 151-167, October.
    3. Philip R. Lane & Gian M Milesi-Ferretti, 2000. "External Capital Structure; Theory and Evidence," IMF Working Papers 00/152, International Monetary Fund.
    4. Shin, Kwanho & Yang, Doo Yong, 2006. "Complementarity between Bilateral Trade and Financial Integration," MPRA Paper 694, University Library of Munich, Germany.
    5. Eslamloueyan, Karim & Jafari, Mahbobeh, 2010. "Capital mobility, openness, and saving-investment relationship in Asia," Economic Modelling, Elsevier, vol. 27(5), pages 1246-1252, September.
    6. Sergio Ginebri & Giacomo Pietroli & Laura Sabani, 2001. "Financial Deepening, Trade Openness and Growth:a Multivariate Cointegrated Analysis of the Complementary Effects," Working Papers 62, Sapienza University of Rome, CIDEI.
    7. James L. Butkiewicz & Halit Yanikkaya, 2008. "Capital Account Openness, International Trade, and Economic Growth: A Cross-Country Empirical Investigation," Emerging Markets Finance and Trade, M.E. Sharpe, Inc., vol. 44(2), pages 15-38, March.
    8. Feeney, JoAnne & Hillman, Arye L., 1995. "Asset markets and individual trade policy preferences," Discussion Papers, Series II 282, University of Konstanz, Collaborative Research Centre (SFB) 178 "Internationalization of the Economy".
    9. Feeney, JoAnne, 1999. "International risk sharing, learning by doing, and growth," Journal of Development Economics, Elsevier, vol. 58(2), pages 297-318, April.
    10. Mario J. Crucini, 2006. "International Real Business Cycles," Vanderbilt University Department of Economics Working Papers 0617, Vanderbilt University Department of Economics.
    11. Bos Jaap W.B. & Economidou Claire & Zhang Lu, 2011. "Specialization in the Presence of Trade and Financial Integration: Explorations of the Integration-Specialization Nexus," Research Memorandum 026, Maastricht University, Maastricht Research School of Economics of Technology and Organization (METEOR).
    12. Kalemli-Ozcan, Sebnem & Sorensen, Bent E. & Yosha, Oved, 2001. "Economic integration, industrial specialization, and the asymmetry of macroeconomic fluctuations," Journal of International Economics, Elsevier, vol. 55(1), pages 107-137, October.
    13. AmirKhalkhali, Sal & Dar, Atul, 2007. "Trade openness and saving-investment correlations," Economic Modelling, Elsevier, vol. 24(1), pages 120-127, January.
    14. Narayan, Seema & Doytch, Nadia & Nguyen, Tri Tung & Kluegel, Karl, 2016. "Trade of goods and services and risk sharing ability in international equity markets: Are these substitutes or complements?," International Review of Economics & Finance, Elsevier, vol. 45(C), pages 485-503.
    15. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 1999. "Industrial specialization and the asymmetry of shocks across regions," Research Working Paper 99-06, Federal Reserve Bank of Kansas City.

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