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Financial Integration, Technology Differences and Capital Flows

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Author Info
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.

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Publisher Info
Paper provided by Instituto de Economía. Pontificia Universidad Católica de Chile. in its series Documentos de Trabajo with number 306.

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Date of creation: 2005
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Handle: RePEc:ioe:doctra:306

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Related research
Keywords: Financial Integration; Technology Differences; Capital Flows; International Factor Price Differences;

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Find related papers by 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

References listed on IDEAS
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  1. Philippe Aghion & Peter Howitt & David Mayer-Foulkes, 2004. "The Effect of Financial Development on Convergence: Theory and Evidence," NBER Working Papers 10358, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  2. Trefler, Daniel, 1993. "International Factor Price Differences: Leontief Was Right!," Journal of Political Economy, University of Chicago Press, vol. 101(6), pages 961-87, December. [Downloadable!] (restricted)
  3. Andrew Atkeson & Patrick J. Kehoe, 2000. "Paths of development for early- and late-bloomers in a dynamic Heckscher-Ohlin model," Staff Report 256, Federal Reserve Bank of Minneapolis. [Downloadable!]
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  5. Robert E. Hall & Charles I. Jones, 1999. "Why Do Some Countries Produce So Much More Output per Worker than Others?," NBER Working Papers 6564, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  6. Prescott, Edward C, 1998. "Needed: A Theory of Total Factor Productivity," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 39(3), pages 525-51, August.
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  7. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2004. "Does Financial Liberalization Spur Growth?," Research series 200405-9, National Bank of Belgium. [Downloadable!]
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  8. Ross Levine, 2004. "Finance and Growth: Theory and Evidence," NBER Working Papers 10766, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  9. Arestis, Philip & Demetriades, Panicos O, 1997. "Financial Development and Economic Growth: Assessing the Evidence," Economic Journal, Royal Economic Society, vol. 107(442), pages 783-99, May. [Downloadable!] (restricted)
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  10. Dornbusch, Rudiger, 1983. "Real Interest Rates, Home Goods, and Optimal External Borrowing," Journal of Political Economy, University of Chicago Press, vol. 91(1), pages 141-53, February. [Downloadable!] (restricted)
    Other versions:
  11. repec:rus:hseeco:70549 is not listed on IDEAS
  12. Bencivenga, Valerie R & Smith, Bruce D, 1991. "Financial Intermediation and Endogenous Growth," Review of Economic Studies, Blackwell Publishing, vol. 58(2), pages 195-209, April. [Downloadable!] (restricted)
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  13. 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. [Downloadable!] (restricted)
  14. Stephen L. Parente & Edward C. Prescott, 2002. "Barriers to Riches," MIT Press Books, The MIT Press, edition 1, volume 1, number 0262661306.
  15. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-31, December. [Downloadable!] (restricted)
  16. Daron Acemoglu & Simon Johnson & James A. Robinson, 2002. "Reversal Of Fortune: Geography And Institutions In The Making Of The Modern World Income Distribution," The Quarterly Journal of Economics, MIT Press, vol. 117(4), pages 1231-1294, November. [Downloadable!] (restricted)
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  17. Lucas, Robert Jr., 1988. "On the mechanics of economic development," Journal of Monetary Economics, Elsevier, vol. 22(1), pages 3-42, July. [Downloadable!] (restricted)
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Cited by:
(explanations, Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.)

  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. [Downloadable!]
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