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Gains from Trade and the Sovereign Bond Market

Kikkawa, Ken and Sasahara, Akira (2018): Gains from Trade and the Sovereign Bond Market.

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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 the interaction between a country's welfare gains from international trade and its sovereign’s access to bond markets. 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.

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