Liquidity and the International Allocation of Economic Activity
Author | : Antonio Rodriguez-Lopez |
Publisher | : |
Total Pages | : 44 |
Release | : 2018 |
ISBN-10 | : OCLC:1304467727 |
ISBN-13 | : |
Rating | : 4/5 (27 Downloads) |
Download or read book Liquidity and the International Allocation of Economic Activity written by Antonio Rodriguez-Lopez and published by . This book was released on 2018 with total page 44 pages. Available in PDF, EPUB and Kindle. Book excerpt: This paper introduces a framework to study the links between the supply of liquid assets for the financial market and the international allocation of economic activity. Private assets' liquidity properties - their usefulness as collateral or media of exchange in financial transactions - affect assets' values and interest rates, with consequences on firm entry, production, aggregate productivity, and total market capitalization. In a closed economy, the liquidity market increases the size and productivity of the sector of the economy that generates liquid assets. In an open economy, however, cross-country differences in financial development - as measured by the degree of liquidity of a country's assets - generate an allocation of real economic activity that favors the country that supplies the most liquid assets. In such a setting, trade liberalization magnifies the gap in economic activity between the countries.