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The relationship between international trade and capital flow: A network perspective

Haoyuan Ding (), Yuying Jin, Ziyuan Liu and Wenjing Xie

Journal of International Money and Finance, 2019, vol. 91, issue C, 1-11

Abstract: The relationship between international trade and capital flow has been extensively discussed. Using bilateral data from 2001 to 2016, we construct international trade and capital flow networks, defined as a weighted graph in which nodes are countries and edges represent trade and capital flow linkages. Centrality is employed as the main variable in this study to represent the importance of a country in the networks. To gain further insight into the network characteristics, we adopt a turning-parameter centrality to combine both the original degree and strength measurements within the weighted network. Moreover, we develop a new indicator called “partner quality centrality” to identify the quality of neighbors. Within the panel cointegration framework, we argue that a positive long-run equilibrium exists between the trade and capital flow networks as constructed. In addition, we employ a panel causality test to investigate the short-run dynamics, indicating that the international capital flow network has predictive power on the trade network from the short-run perspective but not vice versa.

Keywords: International trade; Capital flow; Complex networks; Long-run equilibrium; Short-run dynamics (search for similar items in EconPapers)
JEL-codes: F00 F14 F37 G15 (search for similar items in EconPapers)
Date: 2019
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DOI: 10.1016/j.jimonfin.2018.10.001

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