EconPapers    
Economics at your fingertips  
 

Financial Integration Without Financial Development

Flavia Corneli ()

Atlantic Economic Journal, 2021, vol. 49, issue 2, No 7, 220 pages

Abstract: Abstract This paper shows that, in a two-country model, where the two economies differ in their level of financial market development, financial integration has sizable short- and medium-term effects, even in the absence of aggregate risks. Consistent with the Lucas paradox, the present work establishes that financial integration can reduce the speed of capital accumulation and increase savings in a developing country still in the process of convergence toward the steady state and with domestic capital market distortions. The level of capital accumulation at the time of integration crucially affects agents’ welfare. The closer the economy is to its steady state, the lower are agents’ welfare gains in the financially less advanced economy, while they are always negative in the more developed country. Two forces drive these results: precautionary saving and the propensity to move resources from risky capital to safe assets until the risk-adjusted return on capital equalizes the risk-free interest rate. Under the assumption of the constant relative-risk-aversion utility function, those forces are both decreasing in wealth.

Keywords: Financial integration; International capital movements; Incomplete markets; Economic growth; F36; F43; G11; O16 (search for similar items in EconPapers)
Date: 2021
References: View references in EconPapers View complete reference list from CitEc
Citations: Track citations by RSS feed

Downloads: (external link)
http://link.springer.com/10.1007/s11293-021-09709-2 Abstract (text/html)
Access to the full text of the articles in this series is restricted.

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:kap:atlecj:v:49:y:2021:i:2:d:10.1007_s11293-021-09709-2

Ordering information: This journal article can be ordered from
http://www.springer. ... cs/journal/11293/PS2

DOI: 10.1007/s11293-021-09709-2

Access Statistics for this article

Atlantic Economic Journal is currently edited by Kathleen S. Virgo

More articles in Atlantic Economic Journal from Springer, International Atlantic Economic Society Contact information at EDIRC.
Bibliographic data for series maintained by Sonal Shukla () and Springer Nature Abstracting and Indexing ().

 
Page updated 2022-08-02
Handle: RePEc:kap:atlecj:v:49:y:2021:i:2:d:10.1007_s11293-021-09709-2