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The Elusive Gains from International Financial Integration

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Author Info
PIERRE-OLIVIER GOURINCHAS
OLIVIER JEANNE

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Abstract

Standard theoretical arguments tell us that countries with relatively little capital benefit from financial integration as foreign capital flows in and speeds up the process of convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for the typical emerging market country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1% permanent increase in domestic consumption for the typical non-OECD country. This is negligible relative to the welfare gain from a take-off in domestic productivity of the magnitude observed in some of these countries. Copyright 2006 The Review of Economic Studies Limited.

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File URL: http://www.blackwell-synergy.com/doi/abs/10.1111/j.1467-937X.2006.00393.x
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Article provided by Blackwell Publishing in its journal Review of Economic Studies.

Volume (Year): 73 (2006)
Issue (Month): 3 (07)
Pages: 715-741
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Handle: RePEc:bla:restud:v:73:y:2006:i:3:p:715-741

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