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Trade-Driven Sectoral Upgrading and the Global Balances

Author

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  • Haiping Zhang

    () (Department of Economics, University of Auckland Business School)

Abstract

This paper analyzes how trade integration may affect international financial flows in a world with heterogeneous financial development. In the presence of financial frictions and sector-specific minimum investment requirements, the static gains from trade trigger the cross-sector investment reallocation on the extensive margin, which may allow the more financially developed country (North) to offshore low-return production activities and upgrade to high-return activities. This way, trade-driven sectoral upgrading in North becomes a mechanism through which the substantial decline in trade and communication costs and the resulting boom in supply-chain trade may contribute to the global imbalances in the recent decades.

Suggested Citation

  • Haiping Zhang, 2018. "Trade-Driven Sectoral Upgrading and the Global Balances," Working Papers 2, New Zealand Centre of Macroeconomics.
  • Handle: RePEc:nzm:wpaper:wp2
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    File URL: https://www.nzmacro.org/wpaper/NZCM_WP2.pdf
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    More about this item

    Keywords

    financial frictions; global imbalances; minimum investment requirements; sectoral shifts; supply-chain trade;

    JEL classification:

    • F11 - International Economics - - Trade - - - Neoclassical Models of Trade
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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