Financial Integration, Financial Development, and Global Imbalances

Enrique Mendoza, Vincenzo Quadrini and José-Víctor Ríos-Rull
Authors registered in the RePEc Author Service: José-Víctor Ríos-Rull

Journal of Political Economy, 2009, vol. 117, issue 3, 371-416

Abstract: Global financial imbalances can result from financial integration when countries differ in financial markets development. Countries with more advanced financial markets accumulate foreign liabilities in a gradual, long-lasting process. Differences in financial development also affect the composition of foreign portfolios: countries with negative net foreign asset positions maintain positive net holdings of nondiversifiable equity and foreign direct investment. Three observations motivate our analysis: (1) financial development varies widely even among industrial countries, with the United States on top; (2) the secular decline in the U.S. net foreign asset position started in the early 1980s, together with a gradual process of international financial integration; (3) the portfolio composition of U.S. net foreign assets features increased holdings of risky assets and a large increase in debt. (c) 2009 by The University of Chicago. All rights reserved.

Date: 2009
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Citations: View citations in EconPapers (328)

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Persistent link: https://EconPapers.repec.org/RePEc:ucp:jpolec:v:117:y:2009:i:3:p:371-416

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