{
  "title": "Financial Globalization, Portfolio Diversification, and the Pattern of International Trade",
  "publication": "IMF Working Papers, December 1, 2003",
  "sourceUrl": "https://www.imf.org/en/publications/wp/issues/2016/12/30/financial-globalization-portfolio-diversification-and-the-pattern-of-international-trade-16903",
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  "summary": "The paper provides a general-equilibrium model where incomplete international financial markets lead to insufficient industrial specialization and low international trade.",
  "sections": [
    {
      "heading": "Model and mechanism",
      "content": "- General-equilibrium model where incomplete international financial markets generate:\n  - Insufficient industrial specialization.\n  - Low international trade.\n- Mechanism: Because international portfolio diversification is limited and productivity is uncertain, investors prefer to maintain a diversified industrial structure rather than specialize according to comparative advantage.\n- Financial globalization reduces diversification constraints, inducing more specialization and thereby increasing trade."
    },
    {
      "heading": "Analytical results",
      "content": "- The framework yields explicit closed-form solutions for:\n  - The volume of trade.\n  - The structure of trade.\n- The model integrates concepts and terminology including: comparative advantage, utility function, portfolio choice, max E, productivity shock, Ricardian trade model, trade dependence ratio, trade structure estimation, trade volume."
    },
    {
      "heading": "Empirical findings",
      "content": "- Empirical results support the theory's implications. Specifically, trade in financially open countries is:\n  - (i) higher,\n  - (ii) more dependent on productivity differences, and\n  - (iii) less sensitive to industry risks."
    },
    {
      "heading": "Policy-relevant implications",
      "content": "- Financial globalization can be expected to:\n  - Encourage industrial specialization aligned with comparative advantage.\n  - Increase the volume of international trade.\n  - Alter the determinants of trade toward productivity differences and away from industry-specific risk sensitivity.\n\n---\n\n Content in this bundle\n\n- wp03233\n  - wp03233 (Markdown version){rel=\"alternate\" type=\"text/markdown\"}\n  - wp03233 (PDF){rel=\"external\" type=\"application/pdf\"}\n\n---\n\nSource: https://www.imf.org/en/publications/wp/issues/2016/12/30/financial-globalization-portfolio-diversification-and-the-pattern-of-international-trade-16903"
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    "Authors: Miklós Koren",
    "Published: December 1, 2003",
    "Series: IMF Working Papers",
    "DOI: https://doi.org/10.5089/9781451875614.001",
    "General-equilibrium model where incomplete international financial markets generate:",
    "Mechanism: Because international portfolio diversification is limited and productivity is uncertain, investors prefer to maintain a diversified industrial structure rather than specialize according to comparative advantage.",
    "Financial globalization reduces diversification constraints, inducing more specialization and thereby increasing trade.",
    "The framework yields explicit closed-form solutions for:",
    "The model integrates concepts and terminology including: comparative advantage, utility function, portfolio choice, max E, productivity shock, Ricardian trade model, trade dependence ratio, trade structure estimation, trade volume.",
    "Empirical results support the theory's implications. Specifically, trade in financially open countries is:",
    "Financial globalization can be expected to:",
    "**_wp03233**"
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