International Capital Movements Under Uncertainty

Gene Grossman and Assaf Razin

No 1075, NBER Working Papers from National Bureau of Economic Research, Inc

Abstract: In this paper, we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities.In our model, the world allocation of capital is governed, to some extent, by the asset preferences of risk averse consumer-investors. In a one-good variant in the spirit of the MacDougall model, we find that relative factor abundance, relative labor force size and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements.These same factors remain important in a two-good version with Heckscher-Ohlin production structure. In this case, the direction of physical capital flow is determinate (unlike in a world of certaint and may hinge on the identity of the factor which is used intensively in the industry with random technology.

Date: 1983-02
Note: ITI IFM
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Published as Grossman, Gene M. and Assaf Razin. "International Capital Movements Under Uncertainty." Journal of Political Economy, Vol. 92, No. 2, (April 1984), pp . 286-306.

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