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Financial Integration, Technology Differences and Capital Flows

Author

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  • Sebastián Claro

    (Instituto de Economía. Pontificia Universidad Católica de Chile.)

Abstract

The one-to-one mapping between cross-country differences in capital returns and the size and direction of international capital flows after financial integration vanishes in a multi-sector world with a laborintensive non-tradable sector if financial liberalization generates significant swings in the demand for the non-tradable good. For example, a high return to capital country may become an exporter of capital after financial integration if access to world capital markets enhances demand for the non-tradable good. Because domestic wages are determined by the competitiveness conditions in tradable industries, excess demand for labor created by the expansion of non-tradable demand is eliminated with capital outflows. These "non-standard" effects of financial integration on non-tradable demand are possible, for example, if financial liberalization affects the rate of productivity growth.

Suggested Citation

  • Sebastián Claro, 2005. "Financial Integration, Technology Differences and Capital Flows," Documentos de Trabajo 306, Instituto de Economia. Pontificia Universidad Católica de Chile..
    • Handle: RePEc:ioe:doctra:306
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    File URL: https://www.economia.uc.cl/docs/doctra/dt-306.pdf
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    References listed on IDEAS

    as
    1. Lucas, Robert E, Jr, 1990. "Why Doesn't Capital Flow from Rich to Poor Countries?," American Economic Review, American Economic Association, vol. 80(2), pages 92-96, May.
    2. Levine, Ross, 2005. "Finance and Growth: Theory and Evidence," Handbook of Economic Growth, in: Philippe Aghion & Steven Durlauf (ed.), Handbook of Economic Growth, edition 1, volume 1, chapter 12, pages 865-934, Elsevier.
    3. Bela Balassa, 1964. "The Purchasing-Power Parity Doctrine: A Reappraisal," Journal of Political Economy, University of Chicago Press, vol. 72, pages 584-584.
    4. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July.
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    Cited by:

    1. Rodrigo Fuentes & Verónica Mies, 2007. "Development Paths and Dynamic Comparative Advantages: When Leamer Met Solow," Working Papers Central Bank of Chile 453, Central Bank of Chile.

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    More about this item

    Keywords

    Financial integration; technology differences; capital flows; international factor price differences;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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