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Why Does Capital Flow to Rich States?

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Author Info
Sebnem Kalemli-Ozcan
Ariell Reshef
Bent Sorensen
Oved Yosha

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Abstract

The magnitude and the direction of net international capital flows does not fit neo-classical models. The 50 U.S. states comprise an integrated capital market with very low barriers to capital flows, which makes them an ideal testing ground for neoclassical models. We develop a simple frictionless open economy model with perfectly diversified ownership of capital and find that capital flows between the U.S. states are consistent with the model. Therefore, the small size and "wrong" direction of net international capital flows are likely due to frictions associated with national borders and not due to inherent flaws in the neoclassical model.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 11301.

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Date of creation: May 2005
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Handle: RePEc:nbr:nberwo:11301

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Find related papers by JEL classification:
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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References listed on IDEAS
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.:
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  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich to Poor Capital Flows," NBER Working Papers 10296, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
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  13. Bertocchi, Graziella & Canova, Fabio, 2002. "Did colonization matter for growth?: An empirical exploration into the historical causes of Africa's underdevelopment," European Economic Review, Elsevier, vol. 46(10), pages 1851-1871, December. [Downloadable!] (restricted)
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  14. Sorensen, Bent E & Wu, Yi-Tsung & Yosha, Oved & Zhu, Yu, 2005. "Home Bias and International Risk Sharing: Twin Puzzles Separated at Birth," CEPR Discussion Papers 5113, C.E.P.R. Discussion Papers. [Downloadable!] (restricted)
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  20. Kalemli-Ozcan, Sebnem & Sorensen, Bent E. & Yosha, Oved, 2001. "Economic integration, industrial specialization, and the asymmetry of macroeconomic fluctuations," Journal of International Economics, Elsevier, vol. 55(1), pages 107-137, October. [Downloadable!] (restricted)
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  23. John W. Budd & Matthew J.Slaughter, 2000. "Are Profits Shared Across Borders? Evidence on International Rent Sharing," NBER Working Papers 8014, National Bureau of Economic Research, Inc. [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. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Capital Flows in a Globalized World: The Role of Policies and Institutions," NBER Working Papers 11696, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
    Other versions:
  2. Ridhwan, M.M. & Nijkamp, P. & Rietveld, P. & Groot, H.L.F. de, 2008. "Regional development and monetary policy : a review of the role of monetary unions, capital mobility and locational effects," Serie Research Memoranda 0007, VU University Amsterdam, Faculty of Economics, Business Administration and Econometrics. [Downloadable!]
  3. Vadym Volosovych, 2006. "Risk Sharing from International Factor Income: Explaining Cross-Country Differences," Working Papers 06008, Department of Economics, College of Business, Florida Atlantic University, revised Jan 2009. [Downloadable!]
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