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Global Diversification, Growth and Welfare with Imperfectly Integrated Markets for Goods

  • Bernard Dumas
  • Raman Uppal

In this article, we examine the effect of the imperfect mobility of goods on international risk sharing and, through that, on the investment in risky projects, welfare and growth. We find that the welfare gain of financial market openness is not monotonic with respect to investors' risk aversion and the aggregate volatility of output growth. Our main result is that the welfare gain from integration is not drastically reduced by the presence of goods market imperfections, modeled as a cost of transferring goods from one country to the other. Hence, financial market integration may be a worthwhile goal to pursue even at a time when full goods mobility has not been achieved.

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File URL: http://www.nber.org/papers/w6994.pdf
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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 6994.

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Date of creation: Mar 1999
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Publication status: published as Dumas, B. and R. Uppal. "Global Diversification, Growth, And Welfare With Imperfectly Integrated Markets For Goods," Review of Financial Studies, 2001, v14(1,Spring), 277-305.
Handle: RePEc:nbr:nberwo:6994
Note: IFM
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  1. Alan C. Stockman, 1987. "Sectoral and National Aggregate Disturbances to Industrial Output in Seven European Countries," NBER Working Papers 2313, National Bureau of Economic Research, Inc.
  2. Wheatley, Simon, 1988. "Some tests of international equity integration," Journal of Financial Economics, Elsevier, vol. 21(2), pages 177-212, September.
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