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Understanding International Differences in Trade and Capital Market Integration

Author

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  • Sebastián Claro

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

International integration in capital markets raises the cost of capital in technology-backward countries, pushing them toward specialization in labor-intensive industries. To avoid specialization and to sustain production of capital-intensive industries, governments either impose tari.s or limit the degree of capital market integration. The idea that trade and capital market distortions are substitutes is apparently contradicted by the empirical evidence, that shows that countries with more open trade regimes are also more integrated to world capital markets. However, after controlling for international productivity and factor endowment di.erences, I find a negative association between trade and capital market integration, as predicted by the model.

Suggested Citation

  • Sebastián Claro, 2005. "Understanding International Differences in Trade and Capital Market Integration," Documentos de Trabajo 285, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:285
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    File URL: http://www.economia.uc.cl/docs/dt_285.pdf
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    References listed on IDEAS

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    1. Aizenman, Joshua, 2008. "On the hidden links between financial and trade opening," Journal of International Money and Finance, Elsevier, vol. 27(3), pages 372-386, April.
    2. Sebastián Claro, 2003. "A Cross-Country Estimation of the Elasticity of Substitution between Labor and Capital in Manufacturing Industries," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(120), pages 239-257.
    3. Feldstein, Martin & Horioka, Charles, 1980. "Domestic Saving and International Capital Flows," Economic Journal, Royal Economic Society, vol. 90(358), pages 314-329, June.
    4. Edwards, Sebastian & van Wijnbergen, Sweder, 1986. "The Welfare Effects of Trade and Capital Market Liberalization," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 27(1), pages 141-148, February.
    5. Sebastian Edwards, 1989. "On the Sequencing of Structural Reforms," NBER Working Papers 3138, National Bureau of Economic Research, Inc.
    6. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
    7. Assaf Razin & Andrew Rose, 1992. "Business Cycle Volatility and Openness: An Exploratory Cross-Section Analysis," NBER Working Papers 4208, National Bureau of Economic Research, Inc.
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    Citations

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    Cited by:

    1. Sebastián Claro, 2003. "Labor Market Implications of Limited Integration," Latin American Journal of Economics-formerly Cuadernos de Economía, Instituto de Economía. Pontificia Universidad Católica de Chile., vol. 40(121), pages 434-440.

    More about this item

    Keywords

    Tariffs; capital markets; technology differences; international factor price differences;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics
    • F42 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - International Policy Coordination and Transmission

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