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International Capital Movements under Uncertainty

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  • Grossman, Gene M
  • Razin, Assaf

Abstract

In this paper, we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities.In our model, the world allocation of capital is governed, to some extent, by the asset preferences of risk averse consumer-investors. In a one-good variant in the spirit of the MacDougall model, we find that relative factor abundance, relative labor force size and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements.These same factors remain important in a two-good version with Heckscher-Ohlin production structure. In this case, the direction of physical capital flow is determinate (unlike in a world of certaint and may hinge on the identity of the factor which is used intensively in the industry with random technology.

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Bibliographic Info

Article provided by University of Chicago Press in its journal Journal of Political Economy.

Volume (Year): 92 (1984)
Issue (Month): 2 (April)
Pages: 286-306

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Handle: RePEc:ucp:jpolec:v:92:y:1984:i:2:p:286-306

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References

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  1. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, 03.
  2. Batra, Raveendra N, 1975. "Production Uncertainty and the Heckscher-Ohlin Theorem," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 259-68, April.
  3. Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
  4. Anderson, James E., 1981. "The Heckscher-Ohlin and Travis-Vanek theorems under uncertainty," Journal of International Economics, Elsevier, vol. 11(2), pages 239-247, May.
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Citations

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Cited by:
  1. Pierre-Guillaume Méon & Laurent Weill, 2003. "A View of the European Union as an Evolving Country Portfolio," Working Papers of LaRGE Research Center 2003-04, Laboratoire de Recherche en Gestion et Economie (LaRGE), Université de Strasbourg.
  2. Robert Zymek (University of Edinburgh), 2013. "Factor Proportions and the Growth of World Trade," ESE Discussion Papers 226, Edinburgh School of Economics, University of Edinburgh.
  3. Ramondo, Natalia & Rappoport, Veronica, 2010. "The role of multinational production in a risky environment," Journal of International Economics, Elsevier, vol. 81(2), pages 240-252, July.
  4. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2000. "Risk sharing and industrial specialization ; regional and international evidence," Research Working Paper RWP 00-06, Federal Reserve Bank of Kansas City.
  5. Sebnem Kalemli-Ozcan, 2011. "Comment on "The Risk Content of Exports: A Portfolio View of International Trade"," NBER Chapters, in: NBER International Seminar on Macroeconomics 2011, pages 152-157 National Bureau of Economic Research, Inc.
  6. Devereux, Michael B. & Saito, Makoto, 1997. "Growth and risk-sharing with incomplete international assets markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 453-481, May.
  7. Mario Crucini & Prasad Bidarkota, 1997. "Commodity Prices and the Terms of Trade," Working Papers 98-01, Ohio State University, Department of Economics.
  8. Carol L. Osler, 1988. "Terms of Trade and the Transmission of Output Shocks in a Rational Expectations Model," NBER Working Papers 2681, National Bureau of Economic Research, Inc.
  9. John T. Cuddington & Hong Liang & Shihua Lu, 1996. "Uncertainty, Trade, and Capital Flows in Sub-Saharan Africa," International Finance 9602002, EconWPA.
  10. Lars E.O. Svensson, 1987. "Trade in Risky Assets," NBER Working Papers 2403, National Bureau of Economic Research, Inc.
  11. Jordi Pons-Novell & Daniel Tirado-Fabregat, 2006. "Specialization and asymmetries in macroeconomic fluctuations: Evidence for the European regions," Regional Studies, Taylor & Francis Journals, vol. 40(7), pages 695-706.
  12. Carol L. Osler, 1987. "Factor Prices and Welfare Under Integrated Capital Markets," NBER Working Papers 2447, National Bureau of Economic Research, Inc.
  13. Sebnem Kalemli-Ozcan & Bent E. Sorensen & Oved Yosha, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," Working Papers 2004-05, Department of Economics, University of Houston.

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