Financial integration, capital misallocation and global imbalances
AbstractThis paper shows that in a stylized model with two countries, characterized by different levels of financial development, the following facts can be replicated: 1) persistent current account surpluses and 2) high TFP growth in China. Under autarky, entrepreneurs in the emerging country overinvest in short-term projects and underinvest in long-term projects because short-term assets help them secure long-term investments in the presence of credit constraints. This creates an aggregate misallocation of capital. When financial markets integrate, entrepreneurs with long-term projects can have access to cheaper short-term assets abroad, which leaves them with more resources to invest in their projects. This both reduces capital misallocations and generates capital outflows.
Download InfoIf you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.
As the access to this document is restricted, you may want to look for a different version under "Related research" (further below) or search for a different version of it.
Bibliographic InfoArticle provided by Elsevier in its journal Journal of International Money and Finance.
Volume (Year): 32 (2013)
Issue (Month): C ()
Contact details of provider:
Web page: http://www.elsevier.com/locate/inca/30443
Growth; Capital flows; Credit constraints; Financial globalization; Technological change.;
Find related papers by JEL classification:
- F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
- F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies
- O16 - Economic Development, Technological Change, and Growth - - Economic Development - - - Financial Markets; Saving and Capital Investment; Corporate Finance and Governance
- O33 - Economic Development, Technological Change, and Growth - - Technological Change; Research and Development; Intellectual Property Rights - - - Technological Change: Choices and Consequences; Diffusion Processes
You can help add them by filling out this form.
reading list or among the top items on IDEAS.Access and download statisticsgeneral information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Zhang, Lei).
If references are entirely missing, you can add them using this form.