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Bilateral Trade, Openness, and Asset Holdings

  • Alexandra Peter

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    This paper analyzes the relationship between bilateral trade flows, trade openness, and asset holdings in a three-country stochastic general equilibrium model. The three-country model set-up enables me to disentangle the effects of bilateral trade flows and trade openness on bilateral portfolio patterns. I find that both factors independently influence bilateral asset holdings. Higher bilateral trade as well as higher trade openness lead to a higher bilateral foreign asset position. Furthermore, the model shows an interaction effect between these two factors, where increasing trade openness reduces the influence of bilateral trade flows on asset holdings. I provide supporting empirical evidence for these theoretical findings using a data set on the geographical composition of international portfolio holdings. Copyright Springer Science+Business Media, LLC 2012

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    File URL: http://hdl.handle.net/10.1007/s11079-011-9211-7
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    Article provided by Springer in its journal Open Economies Review.

    Volume (Year): 23 (2012)
    Issue (Month): 4 (September)
    Pages: 713-740

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    Handle: RePEc:kap:openec:v:23:y:2012:i:4:p:713-740
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