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Title:The impact of financial market frictions on trade flows, capital flows and economic development PDF Logo
Authors:Bougheas, Spiros
Falvey, Rod
Issue Date: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
Appears in Collections:CESifo Working Papers, CESifo Group Munich

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