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Understanding International Differences in Trade and Capital Market Integration

  • Sebastián Claro

    ()

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

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.

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Paper provided by Instituto de Economia. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 285.

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Date of creation: 2005
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Handle: RePEc:ioe:doctra:285
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  1. 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.
  2. Nicita, Alessandro & Olarreaga, Marcelo, 2001. "Trade and production, 1976-99," Policy Research Working Paper Series 2701, The World Bank.
  3. 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 141-48, February.
  4. Martin Feldstein & Charles Horioka, 1979. "Domestic Savings and International Capital Flows," NBER Working Papers 0310, National Bureau of Economic Research, Inc.
  5. 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.
  6. Sebastian Edwards, 1989. "On the Sequencing of Structural Reforms," OECD Economics Department Working Papers 70, OECD Publishing.
  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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