IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

The geography of trade in goods and asset holdings

  • Antonin Aviat
  • Nicolas Coeurdacier

Gravity equations have been a very useful and powerful tool to model international trade in goods and asset portfolios. However, the negative impact of distance (justified by trans-portation costs for trade in goods and by transaction costs for trade in assets) is surprisingly high. This paper shows that bilateral asset holdings and trade in goods are strongly correlated. The causality can run in both ways: it could be that asset holdings enhances trade in goods and/or that trade in goods enhances asset holdings. This relationship raises the question about the robustness of the results obtained by the gravity literature when considering only one of these variables. To address this problem, we jointly study trade in goods and asset portfolios which lead us to build adequate instruments for trade in goods (mainly geographical determinants and transportation costs) and bilateral financial claims (legal and fiscal environ-ments). Taking endogeneity into account, we find that the causality between bilateral asset holdings and trade in goods runs significantly in both ways and that these effects are strong. Furthermore, we find that distance very weakly affects asset holdings once trade in goods is included. In turn, the impact of distance on trade in goods remains significant but is reduced.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://www.delta.ens.fr/abstracts/wp200410.pdf
Download Restriction: no

Paper provided by DELTA (Ecole normale supérieure) in its series DELTA Working Papers with number 2004-10.

as
in new window

Length:
Date of creation: 2004
Date of revision:
Handle: RePEc:del:abcdef:2004-10
Contact details of provider: Postal:
48 boulevard Jourdan - 75014 Paris

Phone: 01 43 13 63 00
Fax: 01 43 13 63 10
Web page: http://www.delta.ens.fr/
Email:


More information through EDIRC

References listed on IDEAS
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:

as in new window
  1. Buch, Claudia M., 2001. "Distance and International Banking," Kiel Working Papers 1043, Kiel Institute for the World Economy (IfW).
  2. Philippe Martin & H=E9l=E8ne Rey=, 2001. "Financial Super-Markets: Size Matters for Asset Trade," International Finance 0012001, EconWPA.
  3. Lane, Philip R. & Milesi-Ferretti, Gian Maria, 2004. "International Investment Patterns," CEPR Discussion Papers 4499, C.E.P.R. Discussion Papers.
  4. N/A, 1998. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 163(1), pages 3-3, January.
  5. Eaton, J. & Fernandez, R., 1995. "Sovereign Debt," Papers 37, Boston University - Department of Economics.
  6. Richard Portes & Hélène Rey, 2001. "The Determinants of Cross-Border Equity Flows," DELTA Working Papers 2001-08, DELTA (Ecole normale supérieure).
  7. Reuven Glick & Andrew K. Rose, 2001. "Does a currency union affect trade? the time series evidence," Working Paper Series 2001-13, Federal Reserve Bank of San Francisco.
  8. Andrew K. Rose, 2002. "One Reason Countries Pay Their Debts: Renegotiation and International Trade," Working Papers 042002, Hong Kong Institute for Monetary Research.
  9. James E. Anderson & Eric van Wincoop, 2004. "Trade Costs," NBER Working Papers 10480, National Bureau of Economic Research, Inc.
  10. Pierre-Philippe Combes & Miren Lafourcade & Thierry Mayer, 2005. "The Trade Creating Effects of Business and Social Networks: Evidence from France," Université Paris1 Panthéon-Sorbonne (Post-Print and Working Papers) hal-00268768, HAL.
  11. Bhamra, Harjoat S. & Coeurdacier, Nicolas & Guibaud, Stéphane, 2014. "A dynamic equilibrium model of imperfectly integrated financial markets," Journal of Economic Theory, Elsevier, vol. 154(C), pages 490-542.
  12. Harald Hau, 2001. "Location Matters: An Examination of Trading Profits," Journal of Finance, American Finance Association, vol. 56(5), pages 1959-1983, October.
  13. James E. Rauch, 1996. "Networks versus Markets in International Trade," NBER Working Papers 5617, National Bureau of Economic Research, Inc.
  14. Martin, Philippe & Rey, Hélène, 2002. "Financial Globalization and Emerging Markets: With or Without Crash?," CEPR Discussion Papers 3378, C.E.P.R. Discussion Papers.
  15. N/A, 1998. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 165(1), pages 3-3, July.
  16. James E. Anderson & Eric van Wincoop, 2003. "Gravity with Gravitas: A Solution to the Border Puzzle," American Economic Review, American Economic Association, vol. 93(1), pages 170-192, March.
  17. Obstfeld, Maurice & Rogoff, Kenneth, 2000. "The Six Major Puzzles in International Macroeconomics: Is There a Common Cause?," Center for International and Development Economics Research, Working Paper Series qt0sx02651, Center for International and Development Economics Research, Institute for Business and Economic Research, UC Berkeley.
  18. Joshua D. Coval & Tobias J. Moskowitz, 2001. "The Geography of Investment: Informed Trading and Asset Prices," Journal of Political Economy, University of Chicago Press, vol. 109(4), pages 811-841, August.
  19. Bulow, Jeremy & Rogoff, Kenneth S., 1989. "A Constant Recontracting Model of Sovereign Debt," Scholarly Articles 12491028, Harvard University Department of Economics.
  20. Rafael LaPorta & Florencio Lopez-de-Silanes & Andrei Shleifer & Robert W. Vishny, . "Law and Finance," Working Paper 19451, Harvard University OpenScholar.
  21. Kraay, Aart & Loayza, Norman & Serven, Luis & Ventura, Jaume, 2004. "Country Portfolios," Policy Research Working Paper Series 3320, The World Bank.
  22. Andrew K. Rose & Mark M. Spiegel, 2004. "A Gravity Model of Sovereign Lending: Trade, Default, and Credit," IMF Staff Papers, Palgrave Macmillan, vol. 51(s1), pages 50-63, June.
  23. Hummels, David, 1999. "Toward a Geography of Trade Costs," GTAP Working Papers 1162, Center for Global Trade Analysis, Department of Agricultural Economics, Purdue University.
  24. repec:hal:wpaper:halshs-00590775 is not listed on IDEAS
  25. Frankel, Jeffrey & Rose, Andrew K., 2001. "An Estimate of the Effect of Common Currencies on Trade and Income," Working Paper Series rwp01-013, Harvard University, John F. Kennedy School of Government.
  26. Imbs, Jean, 2003. "Trade, Finance, Specialization and Synchronization," CEPR Discussion Papers 3779, C.E.P.R. Discussion Papers.
  27. N/A, 1998. "The World Economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 164(1), pages 3-3, April.
  28. Portes, Richard & Rey, Helene & Oh, Yonghyup, 2001. "Information and capital flows: The determinants of transactions in financial assets," European Economic Review, Elsevier, vol. 45(4-6), pages 783-796, May.
  29. Rafael LaPorta & Florencio Lopez de-Silanes & Andrei Shleifer & Robert W. Vishny, 1997. "Legal Determinants of External Finance," Harvard Institute of Economic Research Working Papers 1788, Harvard - Institute of Economic Research.
  30. Mody, Ashoka & Razin, Assaf & Sadka, Efraim, 2002. "The Role of Information in Driving FDI: Theory and Evidence," CEPR Discussion Papers 3619, C.E.P.R. Discussion Papers.
  31. Huberman, Gur, 2001. "Familiarity Breeds Investment," Review of Financial Studies, Society for Financial Studies, vol. 14(3), pages 659-80.
  32. Loungani, Prakash & Mody, Ashoka & Razin, Assaf, 2002. "The Global Disconnect: The Role of Transactional Distance and Scale Economies in Gravity Equations," Scottish Journal of Political Economy, Scottish Economic Society, vol. 49(5), pages 526-43, December.
  33. James E. Anderson & Douglas Marcouiller, S.J., 1999. "Insecurity and the Pattern of Trade: An Empirical Investigation," Boston College Working Papers in Economics 418, Boston College Department of Economics, revised 03 Aug 2000.
  34. N/A, 1998. "The world economy," National Institute Economic Review, National Institute of Economic and Social Research, vol. 166(1), pages 3-3, October.
  35. Philip R. Lane & Gian Milesi-Ferretti, 2004. "International Investment Patterns," IMF Working Papers 04/134, International Monetary Fund.
  36. Anderson, James E, 1979. "A Theoretical Foundation for the Gravity Equation," American Economic Review, American Economic Association, vol. 69(1), pages 106-16, March.
  37. Angel Serrat, 2001. "A Dynamic Equilibrium Model of International Portfolio Holdings," Econometrica, Econometric Society, vol. 69(6), pages 1467-1489, November.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:del:abcdef:2004-10. See general information about how to correct material in RePEc.

For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.