On the hidden links between financial and trade opening

Joshua Aizenman

Research output: Contribution to journalArticlepeer-review

42 Scopus citations

Abstract

Developing countries characterized by high costs of tax collection and enforcement opt to use financial repression as an implicit tax on savings, providing the impetus for capital flight. A mechanism facilitating illicit capital movements is trade misinvoicing, where the effectiveness of capital controls would increase with the resources spent on monitoring and enforcement per one dollar of international trade. Under these circumstances, greater trade openness increases the effective cost of enforcing financial repression, thereby reducing the usefulness of financial repression as an implicit tax. This in turn implies that financial reforms tend to be the by-product of greater trade integration.

Original languageEnglish
Pages (from-to)372-386
Number of pages15
JournalJournal of International Money and Finance
Volume27
Issue number3
DOIs
StatePublished - 1 Apr 2008
Externally publishedYes

Keywords

  • Capital controls
  • Collection costs
  • Financial openness
  • Financial repression
  • Trade openness

ASJC Scopus subject areas

  • Finance
  • Economics and Econometrics

Fingerprint

Dive into the research topics of 'On the hidden links between financial and trade opening'. Together they form a unique fingerprint.

Cite this