 International Capital Flows and World Output GainsNo 311, 2009 Meeting Papers from Society for Economic Dynamics Abstract: We develop a two-country overlapping-generations model in which international capital flows mitigate two distinct distortions of financial frictions. Cross-country differences in financial development explain two recent empirical puzzles: first, financial capital flows from poor to rich countries and FDI flows in the opposite direction simultaneously; second, net capital flows are ``uphill'' from poor to rich countries. In contrast to earlier papers in this area (Matsuyama, 2004, Financial Market Globalization, Symmetry-Breaking, and Endogenous Inequality of Nations, Econometrica, and von Hagen and Zhang, 2009, Financial Development and Patterns of International Capital Flows), we show that, with a more general setup of the production side of the economies, perfect capital mobility is efficiency-enhancing in the sense that it unambiguously increases world output. However, if the mobility of either financial capital or foreign direct investment is restricted, capital flows may or may not generate world output gains, depending on the levels of financial development in the two countries. Date: 2009 There are no downloads for this item, see the EconPapers FAQ for hints about obtaining it. Related works: Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text Persistent link: https://EconPapers.repec.org/RePEc:red:sed009:311 Access Statistics for this paper More papers in 2009 Meeting Papers from Society for Economic Dynamics Society for Economic Dynamics Marina Azzimonti Department of Economics Stonybrook University 10 Nicolls Road Stonybrook NY 11790 USA. Contact information at EDIRC. |
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