Gains from trade and the sovereign bond market

Ayumu Ken Kikkawa, Akira Sasahara

Research output: Contribution to journalArticlepeer-review

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 how a country's access to a bond market affects its welfare gains from international trade. 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. Key mechanisms in the model are confirmed by data and the results are found to be robust to a variety of considerations.

Original languageEnglish
Article number103413
JournalEuropean Economic Review
Volume124
DOIs
Publication statusPublished - 2020 May
Externally publishedYes

Keywords

  • Gains from trade
  • Sovereign debt
  • Sovereign default
  • Trade openness

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

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