Working Paper: NBER ID: w12543
Authors: Alan M. Taylor; Janine L. F. Wilson
Abstract: Do international trade and finance flow together? In theory, trade and finance can be substitutes or complements, so the matter must be resolved empirically. We study trade and financial flows from the United Kingdom from 1870 to 1913 and the United States in the interwar years. Trade and finance are robustly correlated, even after allowing for simultaneity. Evidence from the British Empire casts doubt on the idea that trade is a punishment device in the event of a default.
Keywords: No keywords provided
JEL Codes: F10; F30; F40; N10; N20; N70
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| Trade and finance are complementary (F39) | Trade and finance are robustly correlated (F39) |
| Increased trade volumes (F10) | Increased financial flows from Britain to its partner countries (F65) |
| 1% increase in trade flows (F69) | 0.8% increase in gross foreign investment flows from Britain (F21) |
| Increased trade volumes (F10) | Increased financial flows from the US to the trading partner (F10) |
| 1% increase in trade flows (F69) | 0.54% increase in gross foreign investment flows from the US (F21) |
| Increased trade (F19) | Increased public sector investment in the US (H54) |