Scandinavian Working Papers in Economics

SSE/EFI Working Paper Series in Economics and Finance,
Stockholm School of Economics

No 327: Markets for Risk and Openness to Trade: How are they Related?

Helena Svaleryd and Jonas Vlachos ()
Additional contact information
Helena Svaleryd: Department of Economics, Postal: Stockholm University, SE-106 91 Stockholm, Sweden
Jonas Vlachos: Dept. of Economics, Stockholm School of Economics, Postal: P.O. Box 6501, SE-113 83 Stockholm, Sweden

Abstract: It has long been argued that trade restrictions can be motivated by insurance considerations in the absence of full risk diversification. Recent literature suggests that markets for risk can alleviate resistance to reform and protectionist lobby group pressure. We empirically address the hypothesis that institutions which affect domestic risk reduction can facilitate liberal trade policy and show that there exists a robust positive relationship between openness to trade and the development of financial markets.

Keywords: Financial markets; trade policy

JEL-codes: F13; G20

36 pages, First version: June 22, 1999. Revised: August 28, 2001. Earlier revisions: September 10, 2000.

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