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International Trade and Capital Movement under Financial Imperfection

Taiji Furusawa and Noriyuki Yanagawa Taiji Furusawa
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Taiji Furusawa: Hitotsubashi University
Noriyuki Yanagawa Taiji Furusawa: The University of Tokyo

Authors registered in the RePEc Author Service: Taiji Furusawa ()

No CARF-F-316, CARF F-Series from Center for Advanced Research in Finance, Faculty of Economics, The University of Tokyo

Abstract: We construct a simple two-country model that enables us to examine the interactions between trade in goods and international capital movement under financial imperfection. We show that they are complements in the sense that trade in goods facilitates capital outflow from the South, which is either financially less-developed or endowed less capital than the North. This complementarity disappears if financial institution is perfect or almost perfect; trade in goods and capital movement are substitutes as traditional literature shows in such cases. We also show the possibility that capital account liberalization entails capital leakage from the manufacturing industries to an inferior investment opportunity.

Pages: 43 pages
Date: 2013-05
New Economics Papers: this item is included in nep-opm
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Persistent link: https://EconPapers.repec.org/RePEc:cfi:fseres:cf316

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