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Globalization and financial development: A model of the Dot-Com and the Housing Bubbles

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  • Basco, Sergi

Abstract

In the last decade the United States experienced the burst of the Dot-Com and the Housing Bubbles. I develop a model to study the relationship between globalization and the emergence of rational bubbles. I also analyze how the effect of globalization on house prices depends on the type of bubble. I show that bubbles cannot arise in a financially developed country in autarky. In contrast, as globalization progresses, bubbles are more likely to appear in the financially developed country. I also show that house prices increase with globalization only when the bubble is attached to houses. This prediction is consistent with empirical evidence for U.S. metropolitan areas.

Suggested Citation

  • Basco, Sergi, 2014. "Globalization and financial development: A model of the Dot-Com and the Housing Bubbles," Journal of International Economics, Elsevier, vol. 92(1), pages 78-94.
    • Handle: RePEc:eee:inecon:v:92:y:2014:i:1:p:78-94
    DOI: 10.1016/j.jinteco.2013.10.008
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    More about this item

    Keywords

    Financial development; Globalization; Rational bubbles; Housing supply elasticity;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements
    • R31 - Urban, Rural, Regional, Real Estate, and Transportation Economics - - Real Estate Markets, Spatial Production Analysis, and Firm Location - - - Housing Supply and Markets

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