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Long-run effects of capital market integration using Solow's model

Author

Listed:
  • Philippe Darreau

    (University of Limoges)

  • François Pigalle

    (University of Limoges)

Abstract

The purpose of this paper is to synthesize the three results in the existing literature (and to add a fourth result) in a single unified framework and thus to identify the conditions under which the capital-exporting and capital-importing countries gain from international financial integration. We show that the capital-exporting country wins if it saves a constant fraction of its profits, and that capital-importing country wins if it saves a constant fraction of its wages. In Solow's model for the integration of the capital market to be profitable, it is necessary for savings to be proportional to income, which increases through the integration of the capital market: profit of the lender, and wages of the borrower.

Suggested Citation

  • Philippe Darreau & François Pigalle, 2015. "Long-run effects of capital market integration using Solow's model," Economics Bulletin, AccessEcon, vol. 35(3), pages 1459-1468.
    • Handle: RePEc:ebl:ecbull:eb-15-00347
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    References listed on IDEAS

    as
    1. Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," The Review of Economic Studies, Review of Economic Studies Ltd, vol. 73(3), pages 715-741.
    2. Philippe Darreau & François Pigalle, 2014. "Long-run effects of capital market integration using OLG model," Economics Bulletin, AccessEcon, vol. 34(3), pages 1835-1845.
    3. Quibria, M. G., 1986. "A note on foreign investment, the savings function and immiserization of national welfare," Journal of Development Economics, Elsevier, vol. 21(2), pages 361-372, May.
    4. Ruffin, Roy J, 1979. "Growth and the Long-Run Theory of International Capital Movements," American Economic Review, American Economic Association, vol. 69(5), pages 832-842, December.
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    Cited by:

    1. Yuling Ma & Jiajun Qiao & Dong Han, 2022. "Simulation and Prediction of Evolution of Specialized Villages Agglomeration Based on System Dynamics," Land, MDPI, vol. 11(8), pages 1-18, July.

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    More about this item

    Keywords

    Solow's model; Capital market integration.;

    JEL classification:

    • O1 - Economic Development, Innovation, Technological Change, and Growth - - Economic Development
    • O4 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity

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