Gains from Trade and the Sovereign Bond Market
42 Pages Posted: 5 Jan 2019 Last revised: 26 Feb 2020
Date Written: December 21, 2018
Increasing international flows of goods, services, and financial assets have been shown to increase a country's welfare through various channels. This paper studies the interaction between a country's welfare gains from international trade and its sovereign’s access to bond markets. We do so by incorporating a sovereign bond market into a simple Armington (1969)' s trade model. While standard trade models suggest surprisingly small gains from trade, our model implies that introducing channels through a sovereign bond market greatly magnifies the gains from trade.
Keywords: Gains from trade, Sovereign debt, Sovereign default, Trade openness
JEL Classification: F14, F60, O19
Suggested Citation: Suggested Citation