Financial Globalization and Real Regionalization

Jonathan Heathcote () and Fabrizio Perri ()

New York University, Leonard N. Stern School Finance Department Working Paper Seires from New York University, Leonard N. Stern School of Business-

Abstract: Over the period 1972-1986, the correlations of GDP, employment and investment between the United States and an aggregate of Europe, Canada and Japan were respectively 0.76, 0.66, and 0.63. For the period 1986 to 2000 the same correlations were much lower: 0.26, 0.03, and -0.07 (real regionalization). At the same time, U.S. international asset trade has significantly increased. For example, between 1972 and 1999, United States gross FDI and equity assets in the same group of countries rose from 4 to 23 percent of the U.S. capital stock (financial globalization). We argue that these two trends are intimately related. We document that the correlation of real shocks between the U.S. and the rest of the world has declined. We then present a model in which international financial market integration occurs endogenously in response to less correlated shocks.

Keywords: BUSINESS CYCLES; EMPLOYMENT; INVESTMENTS; TRADE (search for similar items in EconPapers)
JEL-codes: F36 F41 (search for similar items in EconPapers)
Date: 2001
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Related works:
Working Paper: Financial Globalization and Real Regionalization (2002)
Working Paper: Financial Globalization and Real Regionalization (2002)
Working Paper: Financial Globalization and Real Regionalization (2001)
Working Paper: Financial Globalization and Real Regionalization (2001)
Working Paper: Financial Globalization and Real Regionalization (2003)
Journal Article: Financial globalization and real regionalization (2004)
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Persistent link: http://EconPapers.repec.org/RePEc:fth:nystfi:01-11

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