International Capital Flows and Aggregate Output

Juergen von Hagen and Haiping Zhang ()

No 8400, CEPR Discussion Papers from Centre for Economic Policy Research

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 flows. 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: Capital market imperfections; Financial development; Financial frictions; Foreign direct investment; International capital movements (search for similar items in EconPapers)
JEL-codes: E44 F41 (search for similar items in EconPapers)
Date: 2011-05
New Economics Papers: this item is included in nep-dge, nep-mac and nep-opm
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Citations: View citations in EconPapers (3)

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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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