Financial Globalization and Real Regionalization

Jonathan Heathcote and Fabrizio Perri

No 9292, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: Over the period 1972-1986, the correlations of GDP, employment and investment between the United States and an aggregate of Europe, Canada and Japan were respectively 0.76, 0.66, and 0.63. For the period 1986 to 2000 the same correlations were much lower: 0.26, 0.03 and -0.07 (real regionalization). At the same time, U.S. international asset trade has significantly increased. For example, between 1972 and 1999, United States gross FDI and equity assets in the same group of countries rose from 4 to 23 percent of the U.S. capital stock (financial globalization). We document that the correlation of real shocks between the U.S. and the rest of the world has declined. We then present a model in which international financial market integration occurs endogenously in response to less correlated shocks. Financial integration further reduces the international correlations in GDP and factor supplies. We find that both less correlated shocks and endogenous financial market development are needed to account for all the changes in the international business cycle.

JEL-codes: F36 F41 (search for similar items in EconPapers)
Date: 2002-10
Note: EFG IFM
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (34)

Published as Heathcote, Jonathan and Fabrizio Perri. "Financial Globalization And Real Regionalization," Journal of Economic Theory, 2004, v119(1,Nov), 207-243.

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Journal Article: Financial globalization and real regionalization (2004)
Working Paper: Financial Globalization and Real Regionalization (2003)
Working Paper: Financial Globalization and Real Regionalization (2002)
Working Paper: Financial Globalization and Real Regionalization (2001)
Working Paper: Financial Globalization and Real Regionalization (2001)
Working Paper: Financial Globalization and Real Regionalization (2001)
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