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The Elusive Gains from International Financial Integration

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Author Info
Pierre-Olivier Gourinchas
Olivier Jeanne

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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 convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for the typical emerging country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a one percent permanent increase in domestic consumption for the typical emerging economy. This is negligible relative to the potential welfare gain of a take-off in domestic productivity of the magnitude observed in some of these countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9684.

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Date of creation: May 2003
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Handle: RePEc:nbr:nberwo:9684

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F2 - International Economics - - International Factor Movements and International Business
F3 - International Economics - - International Finance

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