Bilateral Trade, Openness, and Asset Holdings

Alexandra Peter ()

Open Economies Review, 2012, vol. 23, issue 4, 713-740

Abstract: This paper analyzes the relationship between bilateral trade flows, trade openness, and asset holdings in a three-country stochastic general equilibrium model. The three-country model set-up enables me to disentangle the effects of bilateral trade flows and trade openness on bilateral portfolio patterns. I find that both factors independently influence bilateral asset holdings. Higher bilateral trade as well as higher trade openness lead to a higher bilateral foreign asset position. Furthermore, the model shows an interaction effect between these two factors, where increasing trade openness reduces the influence of bilateral trade flows on asset holdings. I provide supporting empirical evidence for these theoretical findings using a data set on the geographical composition of international portfolio holdings. Copyright Springer Science+Business Media, LLC 2012

Keywords: International portfolio holdings; Bilateral trade flows; Trade openness; F10; F30; F41 (search for similar items in EconPapers)
Date: 2012
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DOI: 10.1007/s11079-011-9211-7

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