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The impact of financial market imperfections on trade and capital flows

  • Spiros Bougheas
  • Rod Falvey

    (University of Nottingham)

We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in sectors where finance is important. Capital flows and international trade are complements when countries differ in the degree of development of their financial sectors. Capital flows to countries with more robust financial institutions which in turn allow their economies to develop sectors that are financially dependent.

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Article provided by Universidad de Guadalajara, Centro Universitario de Ciencias Economico Administrativas, Departamento de Metodos Cuantitativos y Maestria en Economia. in its journal EconoQuantum, Revista de Economia y Negocios.

Volume (Year): 6 (2009)
Issue (Month): 1 (Julio - Diciembre)
Pages: 91-110

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Handle: RePEc:qua:journl:v:6:y:2009:i:1:p:91-110
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  1. Beck, Thorsten, 2001. "Financial dependence and international trade," Policy Research Working Paper Series 2609, The World Bank.
  2. Kenneth Kletzer and Pranab Bardhan., 1986. "Credit Markets and Patterns of International Trade," Economics Working Papers 8612, University of California at Berkeley.
  3. Bougheas, Spiros & Riezman, Raymond, 2007. "Trade and the distribution of human capital," Journal of International Economics, Elsevier, vol. 73(2), pages 421-433, November.
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  8. Beck, Thorsten, 2001. "Financial development and international trade : is there a link?," Policy Research Working Paper Series 2608, The World Bank.
  9. Svaleryd, Helena & Vlachos, Jonas, 2005. "Financial markets, the pattern of industrial specialization and comparative advantage: Evidence from OECD countries," European Economic Review, Elsevier, vol. 49(1), pages 113-144, January.
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  14. Ju, Jiandong & Wei, Shang-Jin, 2011. "When is quality of financial system a source of comparative advantage?," Journal of International Economics, Elsevier, vol. 84(2), pages 178-187, July.
  15. Peter Egger & Christian Keuschnigg, 2009. "Corporate Finance and Comparative Advantage," University of St. Gallen Department of Economics working paper series 2009 2009-04, Department of Economics, University of St. Gallen.
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