Financial development, International Trade and welfare

Blanchard, Michel and Peltrault, Frederic (2009): Financial development, International Trade and welfare. Unpublished.

Abstract

Differences between domestic financial systems can lead to international trade. A country with relatively developed or decentralized financial systems will export innovative commodities while a country with less developed and centralized financial systems will export traditional commodities. Trade is always welfare improving before the resolution of uncertainty but the country with the more risk averse financial system and the world as a whole can be worse off with trade after the resolution of uncertainty. A temporary protection can be welfare improving for such risk averse countries which are often the less developed ones.

• Item Type: MPRA Paper
• Language: English
• Keywords: FINANCIAL DEVELOPMENT, TRADE, WELFARE, RISK AVERSION, TRADE LOSSES
• Subjects: F - International Economics > F1 - Trade > F13 - Commercial Policy; Protection; Promotion; Trade Negotiations; International Trade Organizations; D - Microeconomics > D8 - Information, Knowledge, and Uncertainty > D81 - Criteria for Decision-Making under Risk and Uncertainty; F - International Economics > F1 - Trade > F11 - Neoclassical Models of Trade; D - Microeconomics > D6 - Welfare Economics > D60 - General; G - Financial Economics > G3 - Corporate Finance and Governance > G30 - General

References

Aoki M., Patrick H., eds. (1994), The Japanese Main Bank System, Oxford: Clarendon Press, 1994.

Bhagwati, J., (1971), “The Generalized Theory of Distortions and Welfare”, in J. Bhagwati et al., Trade, Balance of Payments and Growth: Papers in International Economics in Honour of Charles P. Kindleberger, Amsterdam: North-Holland.

Block T.H., (2002), Financial Systems, Innovation and Economic Performance, MERIT Publications.

Bugnot P., (2004), European Innovation Scoreboard, Comparative Analysis of Innovation Performance, Council of the European Commission, Commission Staff Working Paper.

Diamond D.W., Dybvig P.H., (1983), Bank runs, Deposit Insurance and Liquidity, Journal of Political Economy”, 91,401-419.

Fry M.J., (1995), Money Interest, and Banking in Economic Development, Second Edition, The John Hopkins University Press, Baltimore and London. Gentry W.M., Hubbard R.G., (2001), “Entrepreneurship and Household Saving”, NBER, Working Paper, N°. 7894.

Greenwood J., Jovanovic B., (1990), “Financial Development, Growth, and the distribution Income”. Journal of Political Economy, 98, 5, October, 1076-1107.

Grossman G. M., and Helpman E., (1991), Innovation and Growth in the Global Economy, MIT Press. Various Chapters.

Hofstede G., (2001), Culture’s Consequences, 2nd edition, Sage publications.

Kihlstrom R.E., Laffont J.J., (1979), A General Equilibrium Entrepreneurial Theory of Firm Formation Based on Risk Aversion, The Journal of Political Economy, Vol.87, 4, 719-748.

Lucas R.E., Prescott E., (1974), Equilibrium Search and Unemployment, Journal of Economic Theory, 7, 188-209.

King R., Levine R., (1993), “Finance, Entrepreneurship and Growth”, Journal of Monetary Economics, 32, 513-542.

Knight., F.H., (1921), Risk, uncertainty and profit, Boston: Houghton Mifflin.

Lipsey R.G., and Lancaster K., (1956), The General Theory of Second Best,” Review of Economic Studies, 24, 11-32.

Mayer C., (1998), Financial Systems and Corporate Governance: A Review of the International Evidence, Journal of Institutional and Theoretical Economics, vol.154, 144-165.

Moskovitz T., and Vissing-Jorgensen A., (2002), “The Private Equity Puzzle”, Americain Economic Review, vol. 92, n°4, pp. 745-778

Nakagawa S., Shimizo T., (1999), Portfolio Selection of Financial Assets by Japan’s Households, Bank of Japan Monthly Bulletin, November.

Newbery D., Stiglitz, J.E., (1984), Pareto Inferior Trade, Review of Economic Studies 51, 1- 12.

Qian Y., Xu C., (1998), Innovation and Bureaucracy under Soft and Hard Budget Constraints, Review of Economic Studies, 65,151-164.

Rajan R., Zingales L., (1998), “Financial dependence and growth,” American Economic Review, 88, pp. 537-58.

Saint-Paul G., (1992), Technological Choice, Financial Markets and Economic Development, European Economic Review 36, 763-781.

Schumpeter J.A., (1911), The Theory of Economic Development: An inquiry into profits, capital, credit, interest and the business cycle. 1934 translation, Cambridge, Mass: Harvard University Press.

Schumpeter J., (1942), Capitalism, Socialism and Democracy, New-York, Harper 1950.

Shy O., (1988), A General Equilibrium Model of Pareto Inferior Trade, Journal of International Economics 25, 143-154.