International Capital Flows and Aggregate Output

Juergen von Hagen and Haiping Zhang ()

No 20-2011, Working Papers from Singapore Management University, School of Economics

Abstract: We show in a tractable, multi-country OLG model that cross-country differences in financial development explain three recent empirical patterns of international capital fl ows. International capital mobility affects output in each country directly through the size of domestic investment as well as indirectly through the composition of domestic investment and the level of domestic savings. In contrast to earlier literature, our model admits the possibility that the indirect effects dominate the direct effects and international capital mobility raises output in the poor country and globally, although net capital flows are in the direction of the rich country. Our model adds to the understanding of the benefits of international capital mobility in the presence of financial frictions.

Keywords: financial frictions; financial development; foreign direct investment (search for similar items in EconPapers)
JEL-codes: E44 F41 (search for similar items in EconPapers)
Pages: 26 pages
Date: 2011-12
New Economics Papers: this item is included in nep-dge, nep-mac, nep-opm and nep-sea
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

Published in SMU Economics and Statistics Working Paper Series

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Related works:
Working Paper: International Capital Flows and Aggregate Output (2011)
Working Paper: International Capital Flows and Aggregate Output (2010)
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