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Gains from trade and the sovereign bond market

Ayumu Ken Kikkawa and Akira Sasahara

European Economic Review, 2020, vol. 124, issue C

Abstract: Increasing international flows of goods, services, and financial assets have been shown to increase a country’s welfare through various channels. This paper studies how a country’s access to a bond market affects its welfare gains from international trade. We do so by incorporating a sovereign bond market into a simple Armington (1969)’s trade model. While standard trade models suggest surprisingly small gains from trade, our model implies that introducing channels through a sovereign bond market greatly magnifies the gains from trade. Key mechanisms in the model are confirmed by data and the results are found to be robust to a variety of considerations.

Keywords: Gains from trade; Sovereign debt; Sovereign default; Trade openness (search for similar items in EconPapers)
JEL-codes: F14 F60 O19 (search for similar items in EconPapers)
Date: 2020
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Working Paper: Gains from Trade and the Sovereign Bond Market (2018) Downloads
Working Paper: Gains from Trade and the Sovereign Bond Market (2018) Downloads
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DOI: 10.1016/j.euroecorev.2020.103413

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