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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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