Accounting undergraduate Honors theses: Essays on international trade and finance

The dissertation consists of three papers exploring the macroeconomic implications of heterogeneity of countries in financial development, economic interconnectedness via trade and financial linkages.
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Accounting undergraduate Honors theses: Essays on international trade and finance University of Arkansas, Fayetteville ScholarWorks@UARK Theses and Dissertations 5-2012 Essays on International Trade and Finance Amat Adarov University of Arkansas, Fayetteville Follow this and additional works at: http://scholarworks.uark.edu/etd Part of the Finance Commons, International Economics Commons, and the Macroeconomics Commons Recommended Citation Adarov, Amat, Essays on International Trade and Finance (2012). Theses and Dissertations. 307. http://scholarworks.uark.edu/etd/307 This Dissertation is brought to you for free and open access by ScholarWorks@UARK. It has been accepted for inclusion in Theses and Dissertations by an authorized administrator of ScholarWorks@UARK. For more information, please contact scholar@uark.edu, ccmiddle@uark.edu. ESSAYS ON INTERNATIONAL TRADE AND FINANCE ESSAYS ON INTERNATIONAL TRADE AND FINANCE A dissertation submitted in partial fulfillment of the requirements for the degree of Doctor of Philosophy in Economics By Amat B. Adarov Altai State Technical University Bachelor of Arts in Economics, 2003 University of Arkansas Master of Arts in Economics, 2007 May 2012 University of Arkansas ABSTRACT The dissertation consists of three papers exploring the macroeconomic implications of heterogeneity of countries in financial development, economic interconnectedness via trade and financial linkages. Chapter 1 examines whether countries which are more centrally located in the global trade network have more synchronized stock markets. Global trade data is used to construct a novel measure of random walk betweenness centrality (RWBC), measuring the extent to which a country lies on random pathways in-between other countries and is therefore likely to be a conduit in the transmission of a shock across global markets. Based on a panel dataset of 58 countries over the period 1990–2000, the study finds that higher centrality of a country in the world trade network is indeed associated with greater stock market synchronicity, ceteris paribus. Chapter 2 uses aggregate macroeconomic experiences of 118 countries over the period 1994–2008 to establish benchmark relationships between macroeconomic fundamentals and levels of financial development of the banking sector, equity markets, and private bond markets. The analysis quantifies the extent to which de-facto financial development of emerging market economies (EMEs) deviates from the levels predicted by their macroeconomic stance. While financial markets in Latin American EMEs are found to be well aligned with their macroeconomic fundamentals, Asian EMEs exceed their reference levels, and European EMEs are found to be systematically financially underdeveloped. No support is found for the argument that these misalignments are caused by heterogeneity in institutional development. Finally, chapter 3 studies the properties and evolution of the product space—a network of relatedness between products. We use bilateral trade data for 187 countries to construct the product space and export specialization of individual countries over the period 1965—2000. The study shows that the product space changed significantly during the 20th century and represents a highly uneven core-periphery structure. The highly interconnected core consists of three industries—chemicals, industrial machinery, and crude materials, each forming around 20% of all linkages. Product synergies that these “commanding heights” industries yield are strategically important for industrialization policies. Regression analysis confirms that specialization in these industries is associated with higher real income levels. This dissertation is approved for recommendation to the Graduate Council Dissertation Directors: _______________________________________ Dr. Raja Kali _______________________________________ Dr. Javier A. Reyes Dissertation Committee: _______________________________________ Dr. Gary D. Ferrier DISSERTATION DUPLICATION RELEASE I hereby authorize the University of Arkansas Libraries to duplicate this dissertation when needed for research and/or scholarship. Agreed __________________________________________ Amat B. Adarov Refused __________________________________________ Amat B. Adarov ACKNOWLEDGEMENTS I am grateful to my dissertation co-chairs Javier Reyes and Raja Kali for their invaluable guidance and support. Special thanks are due to Gary Ferrier for insightful comments that helped improve the quality of the dissertation. I am in debt to all my friends and colleagues at the Department of Economics for making the years in the doctorate program so pleasant. My gratitude goes to all my friends around the world whose support was crucial to me. Finally, and most importantly, I am extremely grateful to my parents, Boris and Aleksandra, and my sister, Aradyana, for their continuous love and encouragement. DEDICATION To my parents, Adarov Boris and Adarova Aleksandra. TABLE OF CONTENTS Introduction ……………………………..………………………………………………………. 1 Chapter 1: Stock Market Synchronicity and the Global Trade Network: a Random-Walk Approach …………………………………………………….……….. 4 Chapter 2: Macroeconomic and Institutional Determinants of Financial Development: Implications for Emerging Markets …………………………………..... 43 Chapter 3: International Trade and Export Specialization Dynamics: a Network Perspective ………………………………………………………………..... 83 Conclusion ...