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Risk Aversion, Wealth and International Capital Flows


  • Clark, Ephraim
  • Jokung, Octave


This paper models capital flows in a rich-poor, two-country, two-asset, dual-risk economy with decreasing absolute risk aversion. The first risk is asset-specific. The second is political and dependent; i.e., related to particular asset outcomes. In this framework, the role of wealth in determining asset preferences is demonstrated, and the conditions for diversification are derived. The wealth effect and diversification conditions are applied to explain ongoing two-way capital flows in general as well as the apparent paradox of domestic capital flight with simultaneous inflows of foreign capital. Copyright 1998 by Blackwell Publishing Ltd.

Suggested Citation

  • Clark, Ephraim & Jokung, Octave, 1998. "Risk Aversion, Wealth and International Capital Flows," Review of International Economics, Wiley Blackwell, vol. 6(3), pages 507-515, August.
  • Handle: RePEc:bla:reviec:v:6:y:1998:i:3:p:507-15

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    References listed on IDEAS

    1. Krishna, Kala, 1990. "The Case of the Vanishing Revenues: Auction Quotas with Monopoly," American Economic Review, American Economic Association, vol. 80(4), pages 828-836, September.
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    5. Pinelopi Koujianou Goldberg & Michael M. Knetter, 1997. "Causes and Consequences of the Export Enhancement Program for Wheat," NBER Chapters,in: The Effects of U.S. Trade Protection and Promotion Policies, pages 273-296 National Bureau of Economic Research, Inc.
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    7. Kala Krishna & Suddhasatwa Roy & Marie Thursby, 1997. "Procompetitive Market Access," NBER Working Papers 6184, National Bureau of Economic Research, Inc.
      • Thursby, M. & Krisna, K. & Roy, S., 1997. "Procompetitive Market Access," Papers 97-006, Purdue University, Krannert School of Management - Center for International Business Education and Research (CIBER).
    8. Gruenspecht, Howard K., 1988. "Export subsidies for differentiated products," Journal of International Economics, Elsevier, vol. 24(3-4), pages 331-344, May.
    9. Douglas A. Irwin, 1994. "Trade Politics and the Semiconductor Industry," NBER Working Papers 4745, National Bureau of Economic Research, Inc.
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    11. Douglas A. Irwin, 1996. "Trade Policies and the Semiconductor Industry," NBER Chapters,in: The Political Economy of American Trade Policy, pages 11-72 National Bureau of Economic Research, Inc.
    12. Jonathan Eaton & Gene M. Grossman, 1986. "Optimal Trade and Industrial Policy Under Oligopoly," The Quarterly Journal of Economics, Oxford University Press, vol. 101(2), pages 383-406.
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    14. Kowalczyk, Carsten, 1994. "Monopoly and trade policy," Journal of International Economics, Elsevier, vol. 36(1-2), pages 177-186, February.
    15. Krishna, Kala, 1989. "Trade restrictions as facilitating practices," Journal of International Economics, Elsevier, vol. 26(3-4), pages 251-270, May.
    16. Carmichael, Calum M., 1987. "The control of export credit subsidies and its welfare consequences," Journal of International Economics, Elsevier, vol. 23(1-2), pages 1-19, August.
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    Cited by:

    1. Bodil O. Hansen & Hans Keiding, 2004. "Financial Intermediation, Moral Hazard, And Pareto Inferior Trade," Economia, ANPEC - Associação Nacional dos Centros de Pósgraduação em Economia [Brazilian Association of Graduate Programs in Economics], vol. 5(2), pages 189-219.
    2. Hansen, Bodil Olai & Keiding, Hans, 2006. "Financial Intermediation, Moral Hazard, And Pareto Inferior Trade," Working Papers 07-2004, Copenhagen Business School, Department of Economics.

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