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Capital Flight, North-South Lending and Stages of Economic Development

  • Sakuragawa, Masaya
  • Hamada, Koichi
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    We present a two-country OLG economy in which international capital mobility exists in the presence of moral hazard in financial contracts. The difference in the extent of asymmetric information is a source of capital movement and capital flows from the South to the North. Even though there exists a unique steady state under autarky, multiple locally stable steady states may emerge in a world economy with an integrated capital market. However, the integration may drive the South down to further impoverishment. The South's government therefore should take into account seriously the timing of capital market liberalization as a conduit of economic development.

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    Article provided by Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association in its journal International Economic Review.

    Volume (Year): 42 (2001)
    Issue (Month): 1 (February)
    Pages: 1-24

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    Handle: RePEc:ier:iecrev:v:42:y:2001:i:1:p:1-24
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    5. Galor, Oded & Tsiddon, Daniel, 1992. "Transitory Productivity Shocks and Long-Run Output," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 33(4), pages 921-33, November.
    6. Galor, Oded, 1986. "Time preference and international labor migration," Journal of Economic Theory, Elsevier, vol. 38(1), pages 1-20, February.
    7. Aaron Tornell, 1995. "Economic Growth and Decline with Endogenous Property Rights," Harvard Institute of Economic Research Working Papers 1739, Harvard - Institute of Economic Research.
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    9. 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.
    10. Kyoji Fukao & Koichi Hamada, 1989. "The Fisherian Time Preference and the Ebolution of Capital Ownership Patterns in a Global Economy," NBER Working Papers 3104, National Bureau of Economic Research, Inc.
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