Working Paper: CEPR ID: DP6301
Authors: Andrew K. Rose; Mark M. Spiegel
Abstract: This paper shows that proximity to major international financial centers seems to reduce business cycle volatility. In particular, we show that countries that are further from major locations of international financial activity systematically experience more volatile growth rates in both output and consumption, even after accounting for domestic financial depth, political institutions, and other controls. Our results are relatively robust in the sense that more financially remote countries are more volatile, though the results are not always statistically significant. The comparative strength of this finding is in contrast to the more ambiguous evidence found in the literature.
Keywords: business cycle; capital; cross-section data; distance; empirical; proximity
JEL Codes: E32; F32
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| International financial remoteness (F30) | Macroeconomic volatility (E39) |
| Political institutions (D02) | Macroeconomic volatility (E39) |
| Domestic financial depth (O16) | Macroeconomic volatility (E39) |
| Trade openness (F43) | Macroeconomic volatility (E39) |
| Government expenditure (H59) | Macroeconomic volatility (E39) |
| Geographic distance (R12) | International financial remoteness (F30) |