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Bilateral Trade, Openness and Asset Holdings

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  • Peter, Alexandra

Abstract

This paper analyzes the relationship between bilateral trade flows, trade openness, and asset holdings in a three-country stochastic general equilibrium model. The threecountry model set-up enables me to disentangle and separate the effects bilateral trade flows and trade openness have on bilateral portfolio patterns. I find that both factors independently influence bilateral asset holdings. Higher bilateral trade as well as higher trade openness lead to a higher bilateral foreign asset position. Furthermore, the two factors show an interaction effect, where increasing trade openness diminishes the influence of bilateral trade flows on asset holdings. I provide supporting empirical evidence for these theoretical findings using a data set on the geographical composition of international portfolio holdings.

Suggested Citation

  • Peter, Alexandra, 2010. "Bilateral Trade, Openness and Asset Holdings," Bonn Econ Discussion Papers 21/2010, University of Bonn, Bonn Graduate School of Economics (BGSE).
  • Handle: RePEc:zbw:bonedp:212010
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    More about this item

    Keywords

    International Portfolio Holdings; Bilateral Trade Flows; Trade Openness;
    All these keywords.

    JEL classification:

    • F10 - International Economics - - Trade - - - General
    • F30 - International Economics - - International Finance - - - General
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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