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Non-Linear Pattern of International Capital Flows

Ly-Dai, Hung

MPRA Paper from University Library of Munich, Germany

Abstract: We establish one non-linear pattern of international capital flows by building up one two-country OLG economy. With symmetric growth and asymmetric interest rate wedges across countries, net total capital inflows are either decreasing or increasing on productivity growth rate. However, with asymmetric growth and asymmetric wedges, they follow one U-shaped curve by first decreasing and then increasing on growth. The turning point of the curve is built on world average growth rate and wedges. Our proposed model can provide an explanation for inconsistencies between theories (i.e, Lucas paradox, up-hill capital flows, and allocation puzzle) about the pattern of international capital flows.

Keywords: Allocation Puzzle; Capital Flows; Financial Frictions; Productivity Growth (search for similar items in EconPapers)
JEL-codes: F15 F36 F43 (search for similar items in EconPapers)
Date: 2016-06, Revised 2018-10-08
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