Trade and Capital Flows: A Financial Frictions Perspective
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Caballero_Trade and.pdf
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266.43 KB
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Author(s)
Antras, Pol
Caballero, Ricardo J.
Date Issued
August 2009
Journal
Journal of Political Economy
Publisher
University of Chicago Press
Citation
Antràs, Pol, and Ricardo J. Caballero. “Trade and Capital Flows: A Financial Frictions Perspective.” The Journal of Political Economy 117.4 (2009): 701-744.© 2009 University of Chicago Press.
Version
Final published version
Abstract
The classical Heckscher‐Ohlin‐Mundell paradigm states that trade and capital mobility are substitutes in the sense that trade integration reduces the incentives for capital to flow to capital‐scarce countries. In this paper we show that in a world with heterogeneous financial development, a very different conclusion emerges. In particular, in less financially developed economies (South), trade and capital mobility are complements in the sense that trade integration increases the return to capital and thus the incentives for capital to flow to South. This interaction implies that deepening trade integration in South raises net capital inflows (or reduces net capital outflows). It also implies that, at the global level, protectionism may backfire if the goal is to rebalance capital flows.
MIT Department
Massachusetts Institute of Technology. Department of Economics
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DOI of Published Version
https://doi.org/10.1086/605583
