Trade integration and financial integration [Elektronische Ressource] : individual, firm and country perspective / presented by Barbara Häußermann

Barbara Häußermann

Informations

• Publié par: universitat_siegen
• Publié le: 01 janvier 2008
• Nombre de lectures: 5
• Langue: English

Extrait

TradeIntegrationandFinancialIntegration-
individual, rmandcountryperspective
Athesispresented
by
BarbaraH u ermann
to
TheDepartmentofEconomics
inful lmentoftherequirements
forthedegreeof
Doctorrerumpoliticarum
inthesubjectof
Economics
UniversityofSiegen
Siegen
December2008c 2008byBarbaraH u ermann
Allrightsreserved.
iiContents
Contents.........................................................................iii
ListofFigures ..................................................................vi
ListofTables .................................................................. vii
Introduction .....................................................................1
1 TradePolicyandRiskDiversi cation .....................................8
1.1 Introduction................................................................. 8
1.2 TheLiterature..............................................................11
1.3 Production .................................................................16
1.4 PortfolioDecisionoftheWorker ............................................18
1.4.1 Incomesources......................................................18
1.4.2 TheWorker’sProblem ...............................................19
1.5 RiskDiversi cationunderProtectionistTradePolicy.........................25
1.5.1 PoorWorker ........................................................31
1.5.2 Wealthyworker .....................................................43
1.6 Conclusion.................................................................52
1.7 Appendix ..................................................................55
2 FDIandFPI-StrategicComplements?................................. 57
iiiContents iv
2.1 Introduction................................................................57
2.2 Whyshould rmsdiversifytheirriskandcombineFDIandFPI?..............60
2.3 TheoreticalFramework .....................................................66
2.3.1 Home...............................................................68
2.3.2 HomeandForeignPortfolioInvestment ..............................73
2.3.3 HomeandForeignDirectInvestment .................................78
2.3.4 HomeandCombinedInternationalInvestment ........................85
2.4 OptimalInvestmentStrategies...............................................90
2.4.1 IsolatedInternationalInvestment .....................................92
2.4.2 CombinedInvestment...................................97
2.5 Conclusion................................................................104
2.6 Appendix .................................................................106
3 Do Regional Trade and Specialization Drive Intra-Regional
Risk-Sharing? .............................................................108
3.1 Introduction...............................................................108
3.2 TheoreticalFoundation ....................................................112
3.3 MethodologyandData ....................................................121
3.4 Results ...................................................................129
3.4.1 EstimationswithTotalTradeData...................................129
3.4.2withIndustryTradeData................................145
3.5 Robustness................................................................153
3.6 Conclusion................................................................155
3.7 Appendix .................................................................157Contents v
4 Conclusion .................................................................170
References ....................................................................173ListofFigures
2.1 IsolatedInvestmentShareswith = 0:3............................... 93
2.2 IsolatedInvestmentShareswith = 0:5............................... 94
2.3 FirstInternationalInvestment ....................................... 98
2.4 FirstisolatedinternationalinvestmentvscombinedFDI .................. 99
2.5 Isolated vs Combined FDI Productivity with positive FDI - FPI
Correlation..................................................... 100
2.6 Isolated vs Combined FDI Productivity with negative FDI - FPI
Correlation..................................................... 101
2.7 CombinedFPIShares ............................................ 103
2.8 CombinedFDIShares ............................................ 104
viListofTables
1.1 ImpactofAssetVarianceionDemandofAsseti........................ 55
1.2 ImpactofAssetCovarianceonDemandofAsseti....................... 55
1.3 ImpactofAssetCovarianceonDemandforAssetj ...................... 55
1.4 ImpactofTariffonAssetCovariance ................................. 56
1.5 ImpactofTariffonAssetCovariance ................................. 56
2.6 OptimalityConditionswithFPI ..................................... 77
2.7 OptimalityConditionswithFDI ..................................... 83
2.8 ImpactofdifferentInternationalInvestmentPossibilities.................. 87
2.9 OptimalityConditionswithCII...................................... 88
2.10 ProductivityCut-OffsandChangingInvestmentswithvaryingFPIvity ..................................................... 95
2.11 Productivity Cut-Offs and Changing Investment Shares with
varyingFDIProductivity. .......................................... 96
3.12 DirectImpactonRiskDiversi cationseparatedbyCountryGroups ........ 130
3.13 IndirectImpactonRiskDiversi cationseparatedbyCountryGroups....... 134
3.14 DirectImpactonRiskDiversi cationseparatedbyCountryGroups ........ 139
3.15 IndirectImpactonRiskDiversi cationseparatedbyCountryGroups....... 142
viiListofTables viii
3.16 Direct and Indirect Impact on Risk Diversi cation separated by
CountryGroups ................................................. 148
3.17 Direct and Indirect Impact on Risk Diversi cation separated by
CountryGroups. ................................................ 152
3.18 TradeControlsforFinancialRiskSharing ............................ 162
3.19 FinancialControlsforFinancialRiskSharing ......................... 163
3.20 TradeControlsforConsumptionRiskSharing ......................... 164
3.21 FinancialControlsforConsumptionRiskSharing ...................... 165
3.22 DirectandIndirectImpactonFinancialRiskSharing ................... 166
3.23 DirectandIndirectImpactonFinancialRiskSharing ................... 167
3.24 DirectandIndirectImpactonFinancialRiskSharing ................... 168
3.25 DirectandIndirectImpactonRiskSharingwithOLS ................... 169Introduction
Globalisation consists of many small components and every component entails dif-
ferent effects. The main part of globalisation is international integration of goods, service,
nancial and factor markets. This integration is accompanied by international trade in
goods, services and nance. According to the WTO Trade Report (2008), the increase in
international trade exceeded the growth in global output in the year 2007 by 2 percentage
points. Afurtherprominentaspectofglobalisationistheincreaseandcompositionofinter-
national capital ows. Foreign direct investment increased during the 1990s by more than
20 % and thereby exceeded international portfolio ows (WTO 2008). Both integration
processes have lead to more ef cient allocation of economic resources and greater levels
of output. However, an additional result of the international trade integration is higher un-
certaintyduetointensi edproductionspecialization,increasedcompetitionandeconomic
cross-country spillovers. Various groups of individuals such as workers, rm owners and
political leaders are differently affected by these risks. Yet, nancial integration offers the
possibility to diversify these new arising risks. Again, the affected groups bene t differ-
entlyfromthesediversi cationpossibilities.
One of the rst historical links between trade liberalisation and nancial liberaliza-
tion can be found in 1846 in the repeal of the English Corn Laws. In course of the -
nancialliberalizationEnglishlandownerswereabletodiversifytheirportfoliosawayfrom
agricultural goods and thus reduced their opposition to protection of the English agricul-
tural industry (Schonhardt-Bailey (1991, 1996)). Following these arguments, Eaton and
1Introduction 2
Grossman (1985) analyse whether trade protection can serve as a social insurance or trade
liberalization reduces this insurance. Hence, the need for new diversi cation possibili-
ties increases. According to these authors, liberalization leads to higher competition and
enforces imports. This entails higher uncertainty for workers in the import competing in-
dustries. Hence,forworkingindividualstariffshaveaninsurancetask. FeeneyandHillman
(2004) support these results. They indicate that a free access to asset markets might be a
substitutefortradeprotection. Withproceedingassetmarketliberalizationthedemandand
political support for trade protection decreases. All these studies take the nancial liberal-
izationasexogenousandtradeliberalizationasconsequenceofit. Yet,empiricallythereis
node niteevidenceforthedirectionofthisargumentation. Variousempiricalstudiesalso
1con rmthepossibilityof nancialliberalizationasaconsequenceoftradeliberalization.
Aizenman (2004) and Tamirisa (1999) both present theoretical arguments for trade
liberalization as a cause for nancial liberalization. Increasing trade and imports offer