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Financial Development, Capital Flow, and Income Differences between Countries

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Kunieda, Takuma

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Abstract

This paper demonstrates with a simple two-country general equilibrium model that the difference in the levels of financial development between countries determines the direction of capital movement and that for some parameter values, if financial markets are integrated internationally, countries with a poorly developed financial sector are never industrialized, while if they had remained closed economies, they would have experienced steady endogenous growth. This result is consistent with a traditional but non-mainstream view of structuralists and gives a theoretical foundation for capital flow regulations which are often imposed by developing countries.

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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11342.

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Date of creation: 06 Sep 2008
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Handle: RePEc:pra:mprapa:11342

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Related research
Keywords: Financial development; Capital flow; Income differences between countries; Credit market imperfections; Two-country model.;

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Find related papers by JEL classification:
O43 - Economic Development, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
F2 - International Economics - - International Factor Movements and International Business

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  2. 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)
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  3. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1997. "Dualism and macroeconomic volatility," CEPREMAP Working Papers (Couverture Orange) 9720, CEPREMAP.
    Other versions:
  4. Galor, Oded & Zeira, Joseph, 1993. "Income Distribution and Macroeconomics," Review of Economic Studies, Blackwell Publishing, vol. 60(1), pages 35-52, January. [Downloadable!] (restricted)
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  6. Ricardo Lagos, 2006. "A Model of TFP," Review of Economic Studies, Blackwell Publishing, vol. 73(4), pages 983-1007, October. [Downloadable!] (restricted)
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  7. Kiminori Matsuyama, 2007. "Aggregate Implications of Credit Market Imperfections," NBER Chapters, in: NBER Macroeconomics Annual 2007, Volume 22, pages 1-60 National Bureau of Economic Research, Inc.
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  8. Gertler, Mark & Rogoff, Kenneth, 1990. "North-South lending and endogenous domestic capital market inefficiencies," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 245-266, October. [Downloadable!] (restricted)
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  10. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
  11. Hyeok Jeong & Robert Townsend, 2007. "Sources of TFP growth: occupational choice and financial deepening," Economic Theory, Springer, vol. 32(1), pages 179-221, July. [Downloadable!] (restricted)
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  12. Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2009. "NBER Macroeconomics Annual 2008," NBER Books, National Bureau of Economic Research, Inc, number acem08-1.
  13. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," NBER Working Papers 11901, National Bureau of Economic Research, Inc. [Downloadable!] (restricted)
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  14. 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)
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