The dissertation consists of three papers exploring the macroeconomic implications of heterogeneity of countries in financial development, economic interconnectedness via trade and financial linkages.
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 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 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 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 …………………………… ……………………………………………………… Chapter 1: Stock Market Synchronicity and the Global Trade Network: a Random-Walk Approach …………………………………………………….……… 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 ………………………………… …………………………………….…… …… 127 Figure (continued) LTH: Leather, rubber, wood and paper products TXL: Textiles Intertemporal Correlation Matrix for Industry 9, 1965-2000 Intertemporal Correlation Matrix for Industry 10, 1965-2000 1965 1965 0.9 0.9 1970 1970 0.8 1975 0.8 1975 0.7 0.7 0.6 0.6 1980 1980 0.5 0.5 1985 1985 0.4 0.4 0.3 1990 0.3 1990 0.2 0.2 1995 1995 0.1 0.1 2000 2000 MNR: Non-metallic mineral manufactures 2000 1995 1990 1985 1980 1975 1970 1965 2000 1995 1990 1985 1980 1975 1970 1965 MTL: Metals Intertemporal Correlation Matrix for Industry 11, 1965-2000 Intertemporal Correlation Matrix for Industry 12, 1965-2000 1965 1965 0.9 0.9 1970 1970 0.8 1975 0.8 1975 0.7 0.7 0.6 0.6 1980 1980 0.5 0.5 1985 1985 0.4 0.4 0.3 1990 0.3 1990 0.2 0.2 1995 1995 0.1 0.1 2000 2000 MLM: Manufactures of metals 2000 1995 1990 1985 1980 1975 1970 1965 2000 1995 1990 1985 1980 1975 1970 1965 IND: Industrial machinery and equipment Intertemporal Correlation Matrix for Industry 13, 1965-2000 Intertemporal Correlation Matrix for Industry 14, 1965-2000 1965 1965 0.9 0.9 1970 1970 0.8 1975 0.8 1975 0.7 0.7 0.6 0.6 1980 1980 0.5 0.5 1985 1985 0.4 0.4 0.3 1990 0.3 1990 0.2 0.2 1995 1995 0.1 0.1 2000 2000 114 2000 1995 1990 1985 1980 1975 1970 1965 2000 1995 1990 1985 1980 1975 1970 1965 Figure (continued) TEL: Telecommunications and office equipment ELC: Electric machinery, apparatus and appliances Intertemporal Correlation Matrix for Industry 15, 1965-2000 Intertemporal Correlation Matrix for Industry 16, 1965-2000 1965 1965 0.9 0.9 1970 1970 0.8 1975 0.8 1975 0.7 0.7 0.6 0.6 1980 1980 0.5 0.5 1985 1985 0.4 0.4 0.3 1990 0.3 1990 0.2 0.2 1995 1995 0.1 0.1 2000 2000 TRN: Road vehicles and other transport equipment 2000 1995 1990 1985 1980 1975 1970 1965 2000 1995 1990 1985 1980 1975 1970 1965 APL: Apparel and footwear Intertemporal Correlation Matrix for Industry 17, 1965-2000 Intertemporal Correlation Matrix for Industry 18, 1965-2000 1965 1965 0.9 0.9 1970 1970 0.8 1975 0.8 1975 0.7 0.7 0.6 0.6 1980 1980 0.5 0.5 1985 1985 0.4 0.4 0.3 1990 0.3 1990 0.2 0.2 1995 1995 0.1 0.1 2000 2000 PRF: Professional, scientific, photographic and optical products 2000 1995 1990 1985 1980 1975 1970 1965 2000 1995 1990 1985 1980 1975 1970 1965 MSC : Miscellaneous manufactured and unclassified products Intertemporal Correlation Matrix for Industry 19, 1965-2000 Intertemporal Correlation Matrix for Industry 20, 1965-2000 1965 1965 0.9 0.9 1970 1970 0.8 1975 0.8 1975 0.7 0.7 0.6 0.6 1980 1980 0.5 0.5 1985 1985 0.4 0.4 0.3 1990 0.3 1990 0.2 0.2 1995 1995 0.1 0.1 2000 2000 115 2000 1995 1990 1985 1980 1975 1970 1965 2000 1995 1990 1985 1980 1975 1970 1965 Figure Dynamics of the product space by industry, 1965-2000 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 1999 1997 1995 1993 1991 1989 1987 1985 1983 1981 1979 1977 1975 1973 20 1971 20 1969 40 1967 40 1971 60 1969 60 80 1967 80 1965 Thousands 100 1965 Thousands Panel A Number of links formed by an industry MEA VEG SUG BVG CRM MNR MTL MLM IND TEL FUE OIL CHE LTH TXL ELC TRN APL PRF MSC Panel B Number of links formed by an industry as a share of the total number of links in the product space 0.35 0.3 0.25 0.2 0.15 0.1 0.05 0.3 0.2 0.1 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 1965 1967 1969 1971 1973 1975 1977 1979 1981 1983 1985 1987 1989 1991 1993 1995 1997 1999 MEA VEG SUG BVG CRM MNR MTL MLM IND TEL FUE OIL CHE LTH TXL ELC TRN APL PRF MSC Figure Industry clustering, 1965-2000 Panel A proximity ϕi,j,t ≥ 0.7 1970 2000 116 Figure (continued) Panel B proximity ϕi,j,t ≥ 0.0 1970 1980 1990 2000 117 Figure 10 Export specialization of selected countries relative to the product space, 19652000 SumProxPSt is the sum of proximity values of all goods in the product space in year t, SumProxRCAi,t is the sum of proximity values of the goods in the product specialization set of country i in year t Then, for each country i and year t: a) the distance from the product space (top left panel) is defined by (SumProxRCAi,t - SumProxPSt.); b) correlation with the product space (top right panel) is the correlation coefficient between product specialization of country i and the product space; c) number of RCA products as a share of the product space (bottom left panel) is the number of product titles in the product specialization set as a share of the total number of product titles in the product space in year t; d) product specialization as a share of the product space (bottom right panel) is (SumProxRCAi,t / SumProxPSt.) Japan vs the USA 5.5 x 10 Correlation with the Product Space Distance from the Product Space 0.7 0.65 4.5 0.6 0.55 3.5 0.5 0.45 2.5 Japan USA 0.4 1965 1970 1975 1980 1985 Year 1990 1995 2000 0.35 1965 Number of RCA products as a share of the Product Space 1975 1980 1985 Year 1990 1995 2000 Product specialization as a share of the Product space 0.5 0.5 0.45 0.45 0.4 0.4 0.35 0.35 0.3 0.3 0.25 0.25 0.2 1970 0.2 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 France vs the USA 4.5 x 10 Distance from the Product Space Correlation with the Product Space 0.75 0.7 0.65 3.5 0.6 France USA 0.55 0.5 2.5 0.45 0.4 1.5 1965 1970 1975 1980 1985 Year 1990 1995 2000 0.35 1965 Number of RCA products as a share of the Product Space 0.5 1975 1980 1985 Year 1990 1995 2000 Product specialization as a share of the Product Space 0.55 0.45 0.5 0.4 0.45 0.35 0.4 0.3 0.35 0.25 0.3 0.2 0.25 1965 1970 1970 1975 1980 1985 Year 1990 1995 2000 0.2 1965 1970 118 1975 1980 1985 Year 1990 1995 2000 Figure 10 (continued) South Korea vs the USA 5.5 x 10 Distance from the Product Space Correlation with the Product Space 0.65 0.6 0.55 4.5 0.5 South Korea USA 0.45 3.5 0.4 0.35 2.5 0.3 1965 1970 1975 1980 1985 Year 1990 1995 2000 0.25 1965 Number of RCA products as a share of the Product Space 1970 1975 1980 1985 Year 1990 1995 2000 Product specialization as a share of the Product space 0.45 0.5 0.4 0.45 0.4 0.35 0.35 0.3 0.3 0.25 0.25 0.2 0.2 0.15 0.15 0.1 0.1 0.05 1965 1970 1975 1980 1985 Year 1990 1995 2000 0.05 1965 1970 1975 1980 1985 Year 1990 1995 2000 Brazil vs the USA 5.5 x 10 Correlation with the Product Space Distance from the Product Space 0.8 0.7 4.5 0.6 0.5 3.5 0.4 0.3 2.5 0.2 1965 1970 1975 1980 1985 Year 1990 1995 2000 Brazil USA 0.1 1965 Number of RCA products as a share of the Product Space 1970 1975 1980 1985 Year 1990 1995 2000 Product specialization as a share of the Product space 0.45 0.5 0.4 0.45 0.4 0.35 0.35 0.3 0.3 0.25 0.25 0.2 0.2 0.15 0.15 0.1 0.05 1965 0.1 1970 1975 1980 1985 Year 1990 1995 2000 0.05 1965 1970 119 1975 1980 1985 Year 1990 1995 2000 Figure 10 (continued) China vs the USA 5.5 x 10 Correlation with the Product Space Distance from the Product Space 0.7 0.65 0.6 4.5 0.55 China USA 0.5 3.5 0.45 0.4 2.5 0.35 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 Number of RCA products as a share of the Product Space 1970 1975 1980 1985 Year 1990 1995 2000 Product specialization as a share of the Product space 0.5 0.5 0.45 0.45 0.4 0.4 0.35 0.35 0.3 0.3 0.25 0.25 0.2 1965 1970 1975 1980 1985 Year 1990 1995 2000 0.2 1965 1970 1975 1980 1985 Year 1990 1995 2000 India vs the USA Distance from the Product Space Correlation with the Product Space 2500 2000 0.8 1500 0.6 1000 0.4 500 0.2 India USA 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 Number of RCA products as a share of the Product Space 0.45 1970 1975 1980 1985 Year 1990 1995 2000 Product specialization as a share of the Product Space 0.4 0.8 0.35 0.3 0.6 0.25 0.4 0.2 0.15 0.2 0.1 0.05 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 120 1975 1980 1985 Year 1990 1995 2000 Figure 11 RCA profiles of selected countries, 1965-2000 For each year t, country i and industry k, the left panel shows the number of RCA product titles that belong to industry k as a share of the total number of RCA products of country i; the right panel shows the number of RCA product titles of country i in industry k as a share of the total number of product titles in industry k the USA Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 25 25 20 20 Number of RCA products by industry, % of industry size Number of RCA products by industry, % of industry size 60 80 70 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 15 10 50 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 15 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 40 30 20 60 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 50 40 30 20 10 10 1965 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 2000 121 the UK Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 25 Number of RCA products by industry, % of industry size 18 Number of RCA products by industry, % of industry size 60 90 16 80 50 20 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 15 10 14 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 12 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 40 30 20 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 60 50 40 30 20 10 1965 70 1970 1975 1980 1985 Year 1990 1995 2000 1965 10 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 Figure 11 (continued) France Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 25 Number of RCA products by industry, % of industry size 14 Number of RCA products by industry, % of industry size 70 12 70 60 60 20 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 50 40 30 20 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 50 40 30 20 1965 1970 1975 1980 1985 Year 1990 1995 2000 10 1965 1965 1970 1975 1980 1985 Year 1990 1995 2000 10 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 2000 122 Italy Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 14 Number of RCA products by industry, % of industry size 25 Number of RCA products by industry, % of industry size 70 12 80 70 60 20 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 15 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 50 40 30 20 60 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 50 40 30 20 1965 10 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 10 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 Japan Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 14 Number of RCA products by industry, % of industry size 30 Number of RCA products by industry, % of industry size 50 90 45 12 25 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 10 20 15 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 35 30 25 20 15 10 80 40 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 60 50 40 30 20 10 1965 70 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 2000 South Korea 123 Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 25 Number of RCA products by industry, % of industry size 20 Number of RCA products by industry, % of industry size 60 90 18 20 80 50 16 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 14 12 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 40 30 20 1970 1975 1980 1985 Year 1990 1995 2000 1965 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 60 50 40 30 20 10 10 1965 70 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 Malaysia Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size 45 18 45 40 16 40 35 14 Number of RCA products by industry, % of industry size 60 50 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 30 25 20 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 12 10 35 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 30 25 20 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 40 30 20 10 1965 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 2000 124 China Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size 15 18 Number of RCA products by industry, % of industry size 70 16 90 80 60 14 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 12 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 50 40 30 20 10 70 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 60 50 40 30 20 10 1965 1965 1970 1975 1980 1985 Year 1990 1995 2000 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 India Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 30 Number of RCA products by industry, % of industry size 14 Number of RCA products by industry, % of industry size 50 60 45 12 25 50 40 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 20 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 35 30 25 20 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 40 30 20 10 1965 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 2000 Brazil 125 Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket 40 14 35 12 30 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 25 20 15 10 1970 1975 1980 1985 Year 1990 1995 2000 Number of RCA products by industry, % of industry size 45 40 50 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 10 1965 Number of RCA products by industry, % of industry size 60 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 40 30 20 35 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 30 25 20 15 10 10 1965 Number of RCA products by industry, % of industry size 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 Mexico Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 25 Number of RCA products by industry, % of industry size 14 Number of RCA products by industry, % of industry size 50 60 45 12 20 50 40 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 10 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 35 30 25 20 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 40 30 20 10 1965 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 1965 2000 1970 1975 1980 1985 Year 1990 1995 2000 Zimbabwe 126 Number of RCA products by industry, % of export basket Number of RCA products by industry, % of export basket Number of RCA products by industry, % of industry size Number of RCA products by industry, % of export basket 40 Number of RCA products by industry, % of industry size 25 Number of RCA products by industry, % of industry size 40 35 60 35 50 20 30 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 25 20 15 10 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 15 10 30 MEA VEG SUG BVG CRM FUE OIL CHE LTH TXL 25 20 15 10 30 20 10 1965 MNR MTL MLM IND TEL ELC TRN APL PRF MSC 40 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 1965 1970 1975 1980 1985 Year 1990 1995 2000 CONCLUSION The dissertation contributes to the discussion on the implications of country heterogeneity and interconnectedness along financial and trade dimensions In the first chapter a network approach is used to analyze cross-country financial synchronicity The study suggests that the network position of a country in the global trade network, as measured by random walk betweenness centrality, is an important factor explaining stock market synchronicity The study has important policy implications as it demonstrates the importance of network centrality in the world economy for financial synchronicity and global shock propagation This contrasts sharply with conventional measures of economic integration, e.g trade openness, which not reflect the risks associated with economic partners Therefore, the network-based approach may serve as an important tool for monitoring systemic risks and resilience of the world economy, as well as risk exposures of individual countries to global financial shocks The second chapter focuses on the macroeconomic and institutional factors that can help explain the heterogeneity in the development of private financial markets across countries, and specifically focuses on emerging economies The study suggests that actual depth of financial market segments, including the credit, equity, and private bond markets, in EMEs corresponds to the expected levels conditional on their macroeconomic fundamentals only in the case of the Latin American EME group, while European EMEs are found to be systematically lagging, and Asian EMEs—overperforming relative to their expected levels However, the institutional development factors not contribute much to explaining these misalignments The paper has important policy implications as it demonstrates that among EMEs only European EMEs are truly underdeveloped financially, i.e financial markets are lagging behind both relative to 127 advanced economies and relative to peer economies with similar macroeconomic environment, while for other EMEs growth of financial markets is constrained by their overall level of economic development and macroeconomic stability Finally, the third chapter offers an interesting perspective on the evolution of global trade and export specialization in the 20th century using a network approach to model synergies between individual goods It is shown that the structure of the product space network has been changing significantly and has evolved into a clearly identified core-periphery structure, where the highly interconnected core consists of only three industries—chemicals, industrial machinery, and crude materials Product synergies with the rest of the product space that the core sectors yield may be strategically important for industrialization policies This has significant policy implications and may provide important guidance in designing development and industrialization policies in the most efficient manner, which may be especially critical for developing nations facing binding constraints with regard to their capital investment choices 128 .. .ESSAYS ON INTERNATIONAL TRADE AND FINANCE ESSAYS ON INTERNATIONAL TRADE AND FINANCE A dissertation submitted in partial fulfillment of the requirements... interactions between trade, finance, specialization, and business cycle synchronization The overall effect of trade on business cycle synchronization is confirmed to be strong and a sizable portion... centrality in the world economy for understanding financial synchronicity and global shock propagation This contrasts sharply with conventional measures of economic integration, e.g trade openness, which