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Financial Development, Technological Change in Emerging Countries and Global Imbalances

Kenza Benhima ()

No 2008-26, EconomiX Working Papers from University of Paris Nanterre, EconomiX

Abstract: The paper shows that in a general equilibrium model with two countries, characterized by different levels of financial development, and two technologies, one more productive and more financially demanding than the other, the following stylized facts can be replicated: 1) the persistent US current account deficits since the beginning of the 90’s; 2) growth of output per worker in developing countries in relative terms with the US during the same period; 3) relative capital accumulation and 4) TFP growth in these countries, also relative to the US. The more productive technology takes more time to implement and is subject to liquidity shocks, while the less productive one, along with external bond assets, can be used as a hoard to finance those liquidity shocks. As a result, after financial globalization, if the emerging economy is capital scarce and if its financial market is sufficiently incomplete, it experiences an increase in net foreign assets that coincides with a fall in the less productive investment and a rise in the more productive one. Convergence towards the steady state implies then both a better allocation of capital that generates endogenous aggregate TFP gains and a rise in aggregate investment that translates into higher growth.

Keywords: Growth; Capital flows; Credit constraints; financial globalization; technological change (search for similar items in EconPapers)
JEL-codes: F36 F43 O16 O33 (search for similar items in EconPapers)
Pages: 50 pages
Date: 2008
New Economics Papers: this item is included in nep-cba, nep-dev, nep-dge, nep-fdg and nep-opm
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Working Paper: Financial Development, Technological Change in Emerging Countries and Global Imbalances (2010) Downloads
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Persistent link: https://EconPapers.repec.org/RePEc:drm:wpaper:2008-26

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