Real effects of financial market integration: does lower home bias lead to welfare benefits?

This paper proposes equity home bias as a proxy for financial integration in the ongoing empirical debate on the impact of financial integration on economic growth. In integrated markets, investors are expected to take full advantage of the potential for international diversification. The extent of equity home bias (i.e. overinvesting in domestic stocks and foregoing gains from international diversification) provides a relevant quantity-based measure of financial integration. Using different techniques to compute home bias, this paper investigates whether countries with lower home bias experience faster economic growth. Additionally, the analysis extends to the link between (decreasing) home bias and international risk sharing and income inequality. The results suggest that financial integration, proxied by the decreasing equity home bias, is positively associated with economic growth and international risk sharing. At the same time, it appears that higher financial integration pairs with higher income inequality.     

Zero Tolerance for GM Flax and the Rules of Trade

Trade in genetically modified products is a longstanding and contentious issue in agricultural trade. One issue has not, as yet, received much attention. This is the mingling of unapproved GM products with conventional products. This issue is likely to gain more prominence in the future as new GM product development accelerates. Until recently, problems with mingling were largely one‐off events. Recently, however, an ongoing case of mingling has arisen – the case of Canadian GM flax in the EU. The case led to an embargo of imports from Canada and subsequently the bilateral negotiation of a protocol to allow exports to resume. The case raises a number of important issues pertaining to the objective of zero tolerance policies for GM products, the operationalisation of zero tolerance, the role of the testing industry, the design of testing regimes and the risks associated with the absence of transparency and/or international standardisation. It is concluded that mingling is a topic that is deserving of multilateral attention.     

Farm Size,Technology Adoption and Agricultural Trade Reform: Evidence from Canada

Using detailed census data covering over 30,000 farms in Alberta, Saskatchewan and Manitoba, Canada, we document the vast and increasing farm size heterogeneity, and analyse the role of farm size in adapting to the removal of an export subsidy in 1995. Consistent with the Alchian-Allen hypothesis, the increase in per-unit trade costs due to the reform was associated with farms of all sizes shifting their production of crops from low value wheat to higher value canola. We find that switching to new labour-saving tillage technologies and away from summerfallow in response to the large negative shock to grain prices caused by the reform varied across the farm size distribution. We develop a theory of heterogenous farms and technology adoption that can explain our findings.     

Intra‐Dealer Integration

This paper examines the quotation behaviour of dealers who made markets in the same stocks on both NASDAQ and either EASDAQ or the LSE. Whereas previous studies examine international integration at the market level, we examine integration at the dealer level. In other words, do dealers within the same market‐making firm use information from their arm on the opposite side of the Atlantic in forming their own quotes? We find that while there is some evidence of integration at the market level, integration is hard to detect at the dealer level. The results are largely unaffected by differences in fungibility between our two samples.