Liquidity and the International Allocation of Economic Activity

Antonio Rodriguez-Lopez

No 6286, CESifo Working Paper Series from CESifo

Abstract: This paper introduces a framework to study the linkages between the financial market for liquid assets and the international allocation of economic activity. Private assets’ liquidity properties -their usefulness as collateral or media of exchange in financial transactions – affect assets’ values and interest rates, with consequences on firm entry, production, aggregate productivity, and total market capitalization. In a closed economy, the liquidity market increases the size and productivity of the sector of the economy that generates liquid assets. In an open economy, however, cross-country differences in financial development - as measured by the degree of liquidity of a country’s assets - generate an allocation of real economic activity that favors the country that supplies the most liquid assets. In such a setting, trade liberalization magnifies the gap in economic activity between the countries.

Keywords: liquidity; trade; financial development; interest rates (search for similar items in EconPapers)
JEL-codes: E43 E44 F12 F40 (search for similar items in EconPapers)
Date: 2016
New Economics Papers: this item is included in nep-int and nep-mac
References: View references in EconPapers View complete reference list from CitEc
Citations:

Downloads: (external link)
https://www.cesifo.org/DocDL/cesifo1_wp6286.pdf (application/pdf)

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:ces:ceswps:_6286

Access Statistics for this paper

More papers in CESifo Working Paper Series from CESifo Contact information at EDIRC.
Bibliographic data for series maintained by Klaus Wohlrabe ().