Links between Trade and Finance: A Disaggregated Analysis

Joshua Aizenman and Ilan Noy

in Financial Markets Volatility and Performance in Emerging Markets

Published by University of Chicago Press

Published in print March 2008 | ISBN: 9780226184951
Published online February 2013 | e-ISBN: 9780226185040 | DOI:
Links between Trade and Finance: A Disaggregated Analysis

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This chapter, which examines the strength of the intertemporal feedbacks between disaggregated measures of trade and financial openness in developing countries, specifically disaggregates the current account into trade in goods (split between manufacturing, metals/ores, fuel, and foodstuffs), services, and income. Similarly, it disaggregates the financial account into foreign direct investment, loans, equity, and trade credit. Such disaggregation provides one with more detailed information about the possible channels at work. Among the interesting patterns it uncovers, the chapter observes systematic changes between the 1980s and the 1990s. Most financial flows in and out of developing countries have taken the form of loans. However, these financial flows are the only type of flows that have decreased between the two decades. The chapter looks at the impact of lagged disaggregated trade on disaggregated financial measures, allowing for macroeconomic controls.

Keywords: financial openness; current account; foreign direct investment; financial flows; disaggregated trade; developing countries; trade; loans; equity; trade credit

Chapter.  7949 words.  Illustrated.

Subjects: Macroeconomics and Monetary Economics

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