A Provincial View of Capital Mobility

35 Pages Posted: 8 Jul 2000 Last revised: 28 Jun 2010

See all articles by Tamim Bayoumi

Tamim Bayoumi

International Monetary Fund (IMF); Centre for Economic Policy Research (CEPR)

Michael W. Klein

Tufts University - The Fletcher School of Law and Diplomacy; National Bureau of Economic Research (NBER)

Date Written: May 1995

Abstract

This paper develops a method of testing for zones of financial integration based upon intertemporal considerations and applies it to data on Canadian provincial trade. In a financially-integrated region individuals smooth consumption with respect to movements in aggregate income. Consumption in that region follows income in that region if individuals use only regional capital markets while consumption follows movements in income in broader regions (e.g. national income or world income) if individuals have access to and use capital markets in those broader regions (e.g. the national or global capital markets, respectively). We derive a specification which measures the impact of differential levels of access to capital markets--different zones of capital mobility--on the relationship between the regional trade balance and regional, national and global income. This empirical specification is tested using data on trade balances across Canadian provinces. The results indicate full capital mobility within Canada but only partial capital mobility between Canada and the rest of the world.

Suggested Citation

Bayoumi, Tamim and Klein, Michael W., A Provincial View of Capital Mobility (May 1995). NBER Working Paper No. w5115. Available at SSRN: https://ssrn.com/abstract=225180

Tamim Bayoumi (Contact Author)

International Monetary Fund (IMF) ( email )

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Centre for Economic Policy Research (CEPR)

London
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Michael W. Klein

Tufts University - The Fletcher School of Law and Diplomacy ( email )

Medford, MA 02155
United States
617-627-2718 (Phone)
617-627-3712 (Fax)

National Bureau of Economic Research (NBER)

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