International trade and international capital flows

Various recent works have sought to understand how endogenous trade dynamics impact international capital flows. In integrating structures of trade into macroeconomic frameworks, one can show that capital can flow from labor-intensive, poor countries to capital-intensive, rich countries upon financial and trade liberalization (Jin, K., in press. Industrial structure and capital flows. American Economic Review). Trade and capital flows can become complements rather than substitutes – contrary to the Heckscher–Ohlin–Mundell prediction – when economies differ in financial development, as shown by Antras and Caballero (Antras, P., Caballero, R.J., 2009. Trade and capital flows: a financial frictions perspective. Journal of Political Economy, 117(4), 701–744), and that an economy's current account adjustment to shocks can depend on its degree of labor market rigidity, as in Ju and Wei. These papers contribute to the burgeoning literature that marries theories of trade and international macroeconomics.