Financial Development, Capital Flow, and Income Differences between Countries

Takuma Kunieda

MPRA Paper from University Library of Munich, Germany

Abstract: This paper demonstrates with a simple two-country general equilibrium model that the difference in the levels of financial development between countries determines the direction of capital movement and that for some parameter values, if financial markets are integrated internationally, countries with a poorly developed financial sector are never industrialized, while if they had remained closed economies, they would have experienced steady endogenous growth. This result is consistent with a traditional but non-mainstream view of structuralists and gives a theoretical foundation for capital flow regulations which are often imposed by developing countries.

Keywords: Financial development; Capital flow; Income differences between countries; Credit market imperfections; Two-country model (search for similar items in EconPapers)
JEL-codes: F2 O43 (search for similar items in EconPapers)
Date: 2008-09-06
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Citations: View citations in EconPapers (2)

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