Financial Integration, Technology Differences and Capital Flows

Sebastian Claro

No 306, Documentos de Trabajo from Instituto de Economia. Pontificia Universidad Católica de Chile.

Abstract: The one-to-one mapping between cross-country differences in capital returns and the size and direction of international capital flows after financial integration vanishes in a multi-sector world with a laborintensive non-tradable sector if financial liberalization generates significant swings in the demand for the non-tradable good. For example, a high return to capital country may become an exporter of capital after financial integration if access to world capital markets enhances demand for the non-tradable good. Because domestic wages are determined by the competitiveness conditions in tradable industries, excess demand for labor created by the expansion of non-tradable demand is eliminated with capital outflows. These "non-standard" effects of financial integration on non-tradable demand are possible, for example, if financial liberalization affects the rate of productivity growth.

Keywords: Financial integration; technology differences; capital flows; international factor price differences (search for similar items in EconPapers)
JEL-codes: F15 F21 F41 (search for similar items in EconPapers)
Date: 2005
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Citations: View citations in EconPapers (1)

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Persistent link: https://EconPapers.repec.org/RePEc:ioe:doctra:306

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