International Capital Flows and World Output Gains

We develop a two-country overlapping-generations model with domestic financial frictions and show that cross-country differences in financial development explain three recent patterns of international capital flows. In our model, domestic financial frictions distort the interest rates and production...

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Main Authors: von Hagen, Jurgen, ZHANG, Haiping
格式: text
語言:English
出版: Institutional Knowledge at Singapore Management University 2010
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在線閱讀:https://ink.library.smu.edu.sg/soe_research/1143
https://ink.library.smu.edu.sg/context/soe_research/article/2142/viewcontent/Zhang_ICF.pdf
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機構: Singapore Management University
語言: English
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總結:We develop a two-country overlapping-generations model with domestic financial frictions and show that cross-country differences in financial development explain three recent patterns of international capital flows. In our model, domestic financial frictions distort the interest rates and production efficiency in the less financially developed country. Capital flows not only lead to cross-country resource reallocation, but also trigger within-country resource reallocation among firms. From the efficiency perspective, full capital mobility raises the world output higher than under international financial autarky. If the mobility of either financial capital or foreign direct investment is restricted, the world output may be lower.