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Challenging the pro-development role of trade agreements when remoteness counts: the Ecuadorian experience

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  • Benedictis Villacreses, Geovanna
  • Calfat, Germán
  • Flôres Jr., Renato G.

Abstract

The question whether global financial integration is beneficial for everyone remains highly disputed. It is often assumed that financial globalization involves threshold effects, where integration is worthwhile only when certain preconditions are met. However, it has also been noted that financial account liberalization also brings about considerable additional indirect benefits. These indirect benefits are often the same as the preconditions, such that there exists a complex two-way relationship between financial globalization and the preconditions/additional benefits. Such a relationship can lead to financial globalization traps, where some economies are trapped at a low level stable equilibrium, while others enjoy ever increasing financial integration. In this paper, we use de facto indicators of international financial integration to investigate if the dynamics of financial integration exhibit signs of such thresholds and traps. We present a parametric way of estimating these important parameters, based on recently developed sample splitting and threshold estimation methods. We find that there are indeed signs of multiple equilibriums if we look at the growth rates of total assets and liabilities. We also find that a group of countries are apparently caught in a high debt stock trap.

Suggested Citation

  • Benedictis Villacreses, Geovanna & Calfat, Germán & Flôres Jr., Renato G., 2006. "Challenging the pro-development role of trade agreements when remoteness counts: the Ecuadorian experience," IOB Working Papers 2006.05, Universiteit Antwerpen, Institute of Development Policy (IOB).
  • Handle: RePEc:iob:wpaper:2006005
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    1. Inmaculada Martinez-Zarzoso & Celestino Suarez-Burguet, 2005. "Transport costs and trade: Empirical evidence for Latin American imports from the European union," The Journal of International Trade & Economic Development, Taylor & Francis Journals, vol. 14(3), pages 353-371.
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    3. Kim, Sukkoo, 1999. "Regions, resources, and economic geography: Sources of U.S. regional comparative advantage, 1880-1987," Regional Science and Urban Economics, Elsevier, vol. 29(1), pages 1-32, January.
    4. World Bank, 2004. "Ecuador : Poverty Assessment," World Bank Publications - Reports 14593, The World Bank Group.
    5. Lars-Hendrik Roller & Leonard Waverman, 2001. "Telecommunications Infrastructure and Economic Development: A Simultaneous Approach," American Economic Review, American Economic Association, vol. 91(4), pages 909-923, September.
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    Cited by:

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    2. Maria Florencia Granato, 2011. "REGIONAL NEW ECONOMIC GEOGRAPHY (refereed paper)," ERSA conference papers ersa10p747, European Regional Science Association.

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