Information Diffusion in International Markets

28 Pages Posted: 10 Jun 2003

See all articles by Marcelo Olarreaga

Marcelo Olarreaga

University of Geneva; Centre for Economic Policy Research (CEPR)

Jacques P. Morisset

World Bank - Foreign Investment Advisory Service (FIAS)

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department

Multiple version iconThere are 3 versions of this paper

Date Written: April 2003

Abstract

Information is costly to acquire in trade and financial markets, especially across international borders. Sellers and buyers rely on information and experiences of other firms, including from business partners located in other countries. This Paper identifies three channels through which information is disseminated in the import and equity markets of 14 OECD countries. The first channel consists of information spillovers from the commercial to the financial markets and vice-versa. We found strong evidence in support of the first direction and some for the reverse, suggesting that traders use common information, frequently from the same sources such as financial intermediaries or banks. The second and third channels emphasize seller and buyer reputation in third markets. While these two channels are equally important in explaining bilateral import flows, buyer reputation appears to be of greater importance for equity flows. All three channels may help better explain contagion effects across markets and countries.

Keywords: Trade, equity flows, information spillovers

JEL Classification: F10, F30, L15

Suggested Citation

Olarreaga, Marcelo and Morisset, Jacques P. and Izquierdo, Alejandro, Information Diffusion in International Markets (April 2003). CEPR Discussion Paper No. 3872. Available at SSRN: https://ssrn.com/abstract=413440

Marcelo Olarreaga (Contact Author)

University of Geneva ( email )

40 Boulevard du Pont-d'Arve
Genève, CH - 1205
Switzerland

Centre for Economic Policy Research (CEPR) ( email )

London
United Kingdom

Jacques P. Morisset

World Bank - Foreign Investment Advisory Service (FIAS) ( email )

1818 H Street, NW
Washington, DC 20433
United States
202-473-0127 (Phone)
202-522-3262 (Fax)

Alejandro Izquierdo

Inter-American Development Bank (IDB) - Research Department ( email )

1300 New York Ave., NW
Washington, DC 20577
United States

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