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Finance, Governments, and Trade

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  • Bertola, Giuseppe
  • Lo Prete, Anna

Abstract

We study how financial transactions may respond to exogenous variation in trade opportunities not only directly, but also through policy channels. In more open economies, governments may find it more difficult to fund and enforce public policies that substitute private financial transactions, and more appealing to deregulate financial markets. We propose a simple theoretical model of such policy-mediated relationships between trade and financial development. Empirically, we document in a country panel dataset that, before the 2007-08 crisis, financial market volumes were robustly and negatively related to the share of government consumption in GDP in regressions that also include indicators of financial regulation and trade openness, and we seek support for a causal interpretation of this result in instrumental variable specifications.

Suggested Citation

  • Bertola, Giuseppe & Lo Prete, Anna, 2013. "Finance, Governments, and Trade," CEPR Discussion Papers 9338, C.E.P.R. Discussion Papers.
    • Handle: RePEc:cpr:ceprdp:9338
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    Cited by:

    1. Lo Prete, Anna, 2013. "Sharing risk within and across countries: the role of labor market institutions," Economic Systems, Elsevier, vol. 37(3), pages 449-461.
    2. Giuseppe Bertola & Anna Lo Prete, 2015. "Reforms, Finance, and Current Accounts," Review of International Economics, Wiley Blackwell, vol. 23(3), pages 469-488, August.
    3. Giuseppe Bertola, 2016. "Finance, Labour, Capital, and International Integration," Manchester School, University of Manchester, vol. 84(S1), pages 1-14, September.
    4. Giuseppe Bertola, 2014. "Labor market policies and European crises," IZA Journal of Labor Policy, Springer;Forschungsinstitut zur Zukunft der Arbeit GmbH (IZA), vol. 3(1), pages 1-11, December.
    5. Kelvin Onwuka & Anayochukwu Basil Chukwu & Tobechi Faith Agbanike, 2021. "Current account and financial reforms: Evidence from sub‐Saharan Africa," International Journal of Finance & Economics, John Wiley & Sons, Ltd., vol. 26(3), pages 4303-4314, July.

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    More about this item

    Keywords

    Financial reforms; Government size; Openness; Private credit;
    All these keywords.

    JEL classification:

    • E60 - Macroeconomics and Monetary Economics - - Macroeconomic Policy, Macroeconomic Aspects of Public Finance, and General Outlook - - - General
    • F13 - International Economics - - Trade - - - Trade Policy; International Trade Organizations
    • G18 - Financial Economics - - General Financial Markets - - - Government Policy and Regulation

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