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Challenging the pro-development role of trade agreements when remoteness counts: the Ecuadorian experience


  • Benedictis Villacreses, Geovanna
  • Calfat, Germán
  • Flôres Jr., Renato G.


The question whether global financial integration is beneficial for everyone remains highly disputed. It is often assumed that financial globalization involves threshold effects, where integration is worthwhile only when certain preconditions are met. However, it has also been noted that financial account liberalization also brings about considerable additional indirect benefits. These indirect benefits are often the same as the preconditions, such that there exists a complex two-way relationship between financial globalization and the preconditions/additional benefits. Such a relationship can lead to financial globalization traps, where some economies are trapped at a low level stable equilibrium, while others enjoy ever increasing financial integration. In this paper, we use de facto indicators of international financial integration to investigate if the dynamics of financial integration exhibit signs of such thresholds and traps. We present a parametric way of estimating these important parameters, based on recently developed sample splitting and threshold estimation methods. We find that there are indeed signs of multiple equilibriums if we look at the growth rates of total assets and liabilities. We also find that a group of countries are apparently caught in a high debt stock trap.

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  • Benedictis Villacreses, Geovanna & Calfat, Germán & Flôres Jr., Renato G., 2006. "Challenging the pro-development role of trade agreements when remoteness counts: the Ecuadorian experience," IOB Working Papers 2006.05, Universiteit Antwerpen, Institute of Development Policy (IOB).
  • Handle: RePEc:iob:wpaper:2006005

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    References listed on IDEAS

    1. Lars-Hendrik Roller & Leonard Waverman, 2001. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," American Economic Review, American Economic Association, vol. 91(4), pages 909-923, September.
    2. Inmaculada Martinez-Zarzoso & Celestino Suarez-Burguet, 2005. "Transport costs and trade: Empirical evidence for Latin American imports from the European union," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(3), pages 353-371.
    3. Blanca Sanchez-Robles, 1998. "Infrastructure Investment And Growth: Some Empirical Evidence," Contemporary Economic Policy, Western Economic Association International, vol. 16(1), pages 98-108, January.
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    Cited by:

    1. Maria Florencia Granato, 2011. "REGIONAL NEW ECONOMIC GEOGRAPHY (refereed paper)," ERSA conference papers ersa10p747, European Regional Science Association.

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