History, gravity and international finance
Arnaud Mehl (),
Barry Eichengreen () and
Livia Chitu ()
No 1466, Working Paper Series from European Central Bank
We analyze persistence in patterns of bilateral financial investment using data on US investors’ holdings of foreign bonds. We document a “history effect” in which the pattern of holdings seven decades ago continues to influence holdings today. 10 to 15% of the cross-country variation in US investors’ foreign bond holdings is explained by holdings 70 years ago, plausibly reflecting fixed costs of market entry and exit. This effect is twice as large for bonds denominated in currencies other than the dollar, suggesting the existence of even higher fixed costs of initiating US foreign investment in currencies other than the dollar. Our findings point to history and path dependence as key sources of financial market segmentation. JEL Classification: F30, N20
Keywords: geography of asset holdings; gravity model; hysteresis; International Finance; international role of the dollar; persistence (search for similar items in EconPapers)
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Journal Article: History, gravity and international finance (2014)
Working Paper: History, Gravity and International Finance (2013)
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Persistent link: https://EconPapers.repec.org/RePEc:ecb:ecbwps:20121466
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