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The Elusive Gains from International Financial Integration

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  • Pierre-Olivier Gourinchas
  • Olivier Jeanne

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 market country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1 % permanent increase in domestic consumption for the typical non-OECD country. This is negligible relative to the welfare gain from a take-off in domestic productivity of the magnitude observed in some of these countries. Copyright 2006, Wiley-Blackwell.

Suggested Citation

  • Pierre-Olivier Gourinchas & Olivier Jeanne, 2006. "The Elusive Gains from International Financial Integration," Review of Economic Studies, Oxford University Press, vol. 73(3), pages 715-741.
  • Handle: RePEc:oup:restud:v:73:y:2006:i:3:p:715-741
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    File URL: http://hdl.handle.net/10.1111/j.1467-937X.2006.00393.x
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    More about this item

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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