Financial Globalization and Real Regionalization

Jonathan Heathcote and Fabrizio Perri

No 01-05, Working Papers from Duke University, Department of Economics

Abstract: Over the period 1973-1985, the correlations of GDP, employment and investment between the United States and an aggregate of major trading partners were respectively 0.76, 0.67, and 0.61. Between 1986-1998 the same correlations were much lower: 0.25, -0.19, and 0.16 (real regionalization). At the same time, U.S. international asset trade has significantly increased. For example, between 1980 and 1999, United States gross foreign assets rose from 27 to 77 percent of U.S. GDP (financial globalization). 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. Financial integration further reduces the international correlations in GDP and factor supplies. We find that both less correlated shocks and endogenous financial market development are needed to account for all the changes in the international business cycle.

JEL-codes: F36 F41 (search for similar items in EconPapers)
Date: 2001
New Economics Papers: this item is included in nep-dge, nep-mfd and nep-pke
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Citations: View citations in EconPapers (9)

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Related works:
Journal Article: Financial globalization and real regionalization (2004)
Working Paper: Financial Globalization and Real Regionalization (2003)
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)
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Persistent link: https://EconPapers.repec.org/RePEc:duk:dukeec:01-05

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