Please use this identifier to cite or link to this item: http://hdl.handle.net/10419/46345
Authors: 
Bougheas, Spiros
Falvey, Rod
Year of Publication: 
2011
Series/Report no.: 
CESifo working paper: Trade Policy 3321
Abstract: 
We introduce financial frictions in a two sector model of international trade with heterogeneous agents. The level of specialization in the economy (economic development) depends on the quality of financial institutions. Underdeveloped financial markets prohibit an economy to specialize in sectors where finance is important. Capital flows and international trade are complements when countries differ in the degree of development of their financial sectors. Capital flows to countries with more robust financial institutions which in turn allow their economies to develop sectors that are financially dependent.
Subjects: 
trade flows
capital flows
financial frictions
economic development
JEL: 
G21
G15
Document Type: 
Working Paper

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