The geography of trade in goods and asset holdings
Antonin Aviat and
Sciences Po publications from Sciences Po
Gravity models have been widely used to describe bilateral trade in goods. Portes and Rey [Portes, R., Rey, H., 2005. The Determinants of Cross-Border Equity Flows. Journal of International Economics, 65(2), 269–296.] applied this framework to cross-border equity flows and found that distance, which proxies information asymmetries, is a surprisingly very large barrier to cross-border asset trade. We adopt a different point of view and explore the complementarity between bilateral trade in goods and bilateral asset holdings in a simultaneous gravity equations framework. Providing different instruments for both endogenous variables, we show that a 10% increase in bilateral trade raises bilateral asset holdings by 6% to 7%. The reverse causality is also significant, albeit smaller. Controlling for trade, the impact of distance on asset holdings is drastically reduced. Keywords: Gravity models; International finance; International trade; Simultaneous equations
Keywords: Gravity models; International finance; International trade; Simultaneous equations (search for similar items in EconPapers)
JEL-codes: C31 F10 F36 (search for similar items in EconPapers)
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Published in Journal of International Economics, 2007, pp.22-51
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Journal Article: The geography of trade in goods and asset holdings (2007)
Working Paper: The geography of trade in goods and asset holdings (2007)
Working Paper: The Geography of Trade in Goods and Asset Holdings (2006)
Working Paper: The geography of trade in goods and asset holdings (2004)
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