The Global Financial Resource Curse

Luca Fornaro, , and Gianluca Benigno
Authors registered in the RePEc Author Service: Martin Wolf

No 14441, CEPR Discussion Papers from C.E.P.R. Discussion Papers

Abstract: Since the late 1990s, the United States has received large capital flows from developing countries - a phenomenon known as the global saving glut - and experienced a productivity growth slowdown. Motivated by these facts, we provide a model connecting international financial integration and global productivity growth. The key feature is that the tradable sector is the engine of growth of the economy. Capital flows from developing countries to the United States boost demand for U.S. non-tradable goods, inducing a reallocation of U.S. economic activity from the tradable sector to the non-tradable one. In turn, lower profits in the tradable sector lead firms to cut back investment in innovation. Since innovation in the United States determines the evolution of the world technological frontier, the result is a drop in global productivity growth. This effect, which we dub the global financial resource curse, can help explain why the global saving glut has been accompanied by subdued investment and growth, in spite of low global interest rates.

Keywords: Global saving glut; Global productivity growth; International financial integration; Capital flows; U.s. productivity growth slowdown; Low global interest rates; Bretton woods ii; Export-led growth (search for similar items in EconPapers)
JEL-codes: E44 F21 F41 F43 F62 O24 O31 (search for similar items in EconPapers)
Date: 2020-02
New Economics Papers: this item is included in nep-int, nep-mac and nep-opm
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (14)

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Related works:
Working Paper: The Global Financial Resource Curse (2020)
Working Paper: The Global Financial Resource Curse (2020)
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