History, Gravity and International Finance / Livia Chițu, Barry Eichengreen, Arnaud J. Mehl.

Format:

Book

Author/Creator:

Chițu, Livia.

Contributor:

National Bureau of Economic Research.

Eichengreen, Barry.

Mehl, Arnaud J.

Series:

Working Paper Series (National Bureau of Economic Research) no. w18697.

NBER working paper series no. w18697

Language:

English

Physical Description:

1 online resource: illustrations (black and white);

Place of Publication:

Cambridge, Mass. National Bureau of Economic Research 2013.

Summary:

We analyze patterns of bilateral financial investment using data on US investors' holdings of foreign bonds. We document a "history effect" in which the pattern of holdings seven decades ago continues to influence holdings today. 10 to 15% of the cross-country variation in US investors' foreign bond holdings is explained by holdings 70 years ago, plausibly reflecting fixed costs of market entry and exit together with endogenous learning. This effect is twice as large for bonds denominated in currencies other than the dollar, suggesting the existence of even higher fixed costs of initiating US foreign investment in such currencies. Our findings point to history and path dependence as key sources of financial market segmentation.

Notes:

Print version record

January 2013.