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Gains from trade and the sovereign bond market

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  • Kikkawa, Ayumu Ken
  • Sasahara, Akira

Abstract

Increasing international flows of goods, services, and financial assets have been shown to increase a country’s welfare through various channels. This paper studies how a country’s access to a bond market affects its welfare gains from international trade. We do so by incorporating a sovereign bond market into a simple Armington (1969)’s trade model. While standard trade models suggest surprisingly small gains from trade, our model implies that introducing channels through a sovereign bond market greatly magnifies the gains from trade. Key mechanisms in the model are confirmed by data and the results are found to be robust to a variety of considerations.

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  • Kikkawa, Ayumu Ken & Sasahara, Akira, 2020. "Gains from trade and the sovereign bond market," European Economic Review, Elsevier, vol. 124(C).
    • Handle: RePEc:eee:eecrev:v:124:y:2020:i:c:s0014292120300453
    DOI: 10.1016/j.euroecorev.2020.103413
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    More about this item

    Keywords

    Gains from trade; Sovereign debt; Sovereign default; Trade openness;
    All these keywords.

    JEL classification:

    • F14 - International Economics - - Trade - - - Empirical Studies of Trade
    • F60 - International Economics - - Economic Impacts of Globalization - - - General
    • O19 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development - - - International Linkages to Development; Role of International Organizations

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