Capital Flows and Trade in an Integrated World

by Jens , Eisenschmidt, MA

The world we live in is increasingly integrated. For the work of economists, increasing international integration bears a significant importance. The present thesis is essentially a work on International Economics. As such it is no exception in that it consists of different chapters, all of which address different issues in the field. The first two chapters are theoretical in nature, whereas the third is empirical. The last chapter provides a technical reference to mathematical problems encountered in the first chapter. The first chapter is concerned with one of the negative effect of international trade: terms-of-trade uncertainty. It asks (and answers) the question why economic agents in practice fail to (completely) hedge away foreign price uncertainty in the presence of well-developed forward markets, even though theoretically they should obtain a full-hedge. The second chapter explores some of the effects international capital flows bring to a country that opens up its capital account. The third chapter describes the evolution of international capital flows and trade flows over that last decade. The last chapter is concerned with the existence of explicit demand schedules under expected utility maximization when the random variable is nonlinearly transformed.