International Capital Flows and Aggregate Output

We develop a tractable multi-country overlapping-generations model and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. Domestic financial frictions in our model distort interest rates and aggregate output in the les...

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Main Authors: von Hagen, Jurgen, ZHANG, Haiping
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Language:English
Published: Institutional Knowledge at Singapore Management University 2010
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Online Access:https://ink.library.smu.edu.sg/soe_research/1231
https://ink.library.smu.edu.sg/context/soe_research/article/2230/viewcontent/ICF_AO_new.pdf
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spelling sg-smu-ink.soe_research-22302019-04-21T01:36:49Z International Capital Flows and Aggregate Output von Hagen, Jurgen ZHANG, Haiping We develop a tractable multi-country overlapping-generations model and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. Domestic financial frictions in our model distort interest rates and aggregate output in the less financially developed countries. International capital flows help ameliorate the two distortions. International flows of financial capital and foreign direct investment affect aggregate output in each country directly through affecting the size of aggregate investment. In addition, they affect aggregate output indirectly through affecting the composition of aggregate investment and the size of aggregate savings. Under certain conditions, the indirect effects may dominate the direct effects so that, despite "uphill" net capital flows, full capital mobility may raise the steady-state aggregate output in the poor country as well as raise world output. However, if foreign direct investment is restricted, "uphill" financial capital flows strictly reduce the steady-state aggregate output in the poor countries and it is more likely that the steady-state world output is lower than under international financial autarky. 2010-10-01T07:00:00Z text application/pdf https://ink.library.smu.edu.sg/soe_research/1231 https://ink.library.smu.edu.sg/context/soe_research/article/2230/viewcontent/ICF_AO_new.pdf http://creativecommons.org/licenses/by-nc-nd/4.0/ Research Collection School Of Economics eng Institutional Knowledge at Singapore Management University Capital account liberalization Financial frictions financial development foreign direct investment world output gains Finance International Economics
institution Singapore Management University
building SMU Libraries
continent Asia
country Singapore
Singapore
content_provider SMU Libraries
collection InK@SMU
language English
topic Capital account liberalization
Financial frictions
financial development
foreign direct investment
world output gains
Finance
International Economics
spellingShingle Capital account liberalization
Financial frictions
financial development
foreign direct investment
world output gains
Finance
International Economics
von Hagen, Jurgen
ZHANG, Haiping
International Capital Flows and Aggregate Output
description We develop a tractable multi-country overlapping-generations model and show that cross-country differences in financial development explain three recent empirical patterns of international capital flows. Domestic financial frictions in our model distort interest rates and aggregate output in the less financially developed countries. International capital flows help ameliorate the two distortions. International flows of financial capital and foreign direct investment affect aggregate output in each country directly through affecting the size of aggregate investment. In addition, they affect aggregate output indirectly through affecting the composition of aggregate investment and the size of aggregate savings. Under certain conditions, the indirect effects may dominate the direct effects so that, despite "uphill" net capital flows, full capital mobility may raise the steady-state aggregate output in the poor country as well as raise world output. However, if foreign direct investment is restricted, "uphill" financial capital flows strictly reduce the steady-state aggregate output in the poor countries and it is more likely that the steady-state world output is lower than under international financial autarky.
format text
author von Hagen, Jurgen
ZHANG, Haiping
author_facet von Hagen, Jurgen
ZHANG, Haiping
author_sort von Hagen, Jurgen
title International Capital Flows and Aggregate Output
title_short International Capital Flows and Aggregate Output
title_full International Capital Flows and Aggregate Output
title_fullStr International Capital Flows and Aggregate Output
title_full_unstemmed International Capital Flows and Aggregate Output
title_sort international capital flows and aggregate output
publisher Institutional Knowledge at Singapore Management University
publishDate 2010
url https://ink.library.smu.edu.sg/soe_research/1231
https://ink.library.smu.edu.sg/context/soe_research/article/2230/viewcontent/ICF_AO_new.pdf
_version_ 1770570672585572352