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The Elusive Gains From International Financial Integration

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  • Pierre-Olivier Gourinchas
  • Olivier Jeanne

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 income convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for developing countries. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1 percent 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.

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Bibliographic Info

Paper provided by International Monetary Fund in its series IMF Working Papers with number 04/74.

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Length: 47
Date of creation: 01 May 2004
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Handle: RePEc:imf:imfwpa:04/74

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Keywords: Capital flows; Human capital; Developing countries; Productivity; Economic growth; Economic models; financial integration; international financial; international financial integration; capital inflows; capital mobility; foreign capital; capital accumulation; capital account liberalization; capital inflow; capital ratio; domestic capital; capital movements; capital markets; capital stock; capital account opening; trade liberalization; capital market; international capital; financial globalization; globalization; international financial architecture; foreign capital flows; credit rationing; volatile capital flows; initial capital inflows; capital controls; capital output ratio; international finance; capital account convertibility; international capital markets; cost of capital; international financial markets; volatile capital; foreign trade policy; international investment; international financial system; international financial market; credit market; international capital market; risk aversion; authorized capital; stock market; foreign trade; credit market imperfections; capital increases; domestic credit; domestic capital markets; financial markets;

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