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FINANCIAL INTEGRATION AND EXTERNAL SUSTAINABILITY
Author(s) -
Towbin Pascal
Publication year - 2013
Publication title -
international journal of finance and economics
Language(s) - English
Resource type - Journals
SCImago Journal Rank - 0.505
H-Index - 39
eISSN - 1099-1158
pISSN - 1076-9307
DOI - 10.1002/ijfe.1469
Subject(s) - position (finance) , economics , net foreign assets , balance of trade , financial integration , balance (ability) , external financing , current account , sustainability , external trade , monetary economics , balance sheet , international economics , macroeconomics , financial market , finance , exchange rate , debt , ecology , biology , physical medicine and rehabilitation , medicine
A stable net external position requires that the trade balance responds negatively to changes in the net external position. If financial integration makes financing external imbalances less costly, we expect slower external adjustment in more integrated economies. The study estimates theoretically founded trade balance reaction functions for a panel of 70 countries from 1970–2008. The empirical analysis finds that adjustment in integrated economies is slower. Consistent with the presented theory, the trade balance of integrated economies is more persistent, responds less strongly to net foreign assets and is more sensitive to fluctuations in net output. Under high integration, the response to the net external position is weak and close to the minimum required to ensure external sustainability. Copyright © 2012 John Wiley & Sons, Ltd.