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Domestic Institutions and the Bypass Effect of Financial Globalization

Jiandong Ju and Shang-Jin Wei
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Jiandong Ju: Tsinghua University and Center for International Economic Research and University of Oklahoma

No 222010, Working Papers from Hong Kong Institute for Monetary Research

Abstract: This paper proposes a simple model to study how domestic institutions affect patterns of international capital flows. Inefficient financial system and poor corporate governance may be bypassed by two-way capital flows in which domestic savings leave the country in the form of financial capital outflows but domestic investment takes place via inward FDI. While financial globalization always improves the welfare of a developed country with a good financial system, its effect is ambiguous for a developing country with an inefficient financial sector or poor corporate governance. Interestingly, financial and property rights institutions can have opposite effects on capital flows.

Keywords: Two-Way Capital Flows; Property Rights Protection; Financial Development; Corporate Governance (search for similar items in EconPapers)
JEL-codes: F21 F33 (search for similar items in EconPapers)
Pages: 45 pages
Date: 2010-08
New Economics Papers: this item is included in nep-cwa, nep-ifn and nep-opm
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Related works:
Journal Article: Domestic Institutions and the Bypass Effect of Financial Globalization (2010) Downloads
Working Paper: Domestic Institutions and the Bypass Effect of Financial Globalization (2007) Downloads
Working Paper: Domestic Institutions and the Bypass Effect of Financial Globalization (2007) Downloads
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