Financial Development and the Patterns of International Capital Flows
We develop a tractable, two-country, overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries while foreign direct investment flows in the opposite direction; net capital flows go from poor to rich countries; despite its negative net international investment position, the US receives a positive net international investment income. We also explore the welfare and distributional effects of international capital flows and show that the direction of capital flows may change along the convergence process of a developing country. Matsuyama (Econometrica 2004) argues that, in the presence of credit market imperfections, financial market globalization may lead to a steady-state equilibrium in which fundamentally identical countries end up with different levels of per-capita output. We show that this symmetry-breaking property depends crucially on the assumption that investment operates on the extensive rather than the intensive margin.
|Date of creation:||Feb 2010|
|Date of revision:|
|Contact details of provider:|| Postal: Centre for Economic Policy Research, 77 Bastwick Street, London EC1V 3PZ.|
Phone: 44 - 20 - 7183 8801
Fax: 44 - 20 - 7183 8820
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009.
"Capital Flows and Asset Prices,"
in: NBER International Seminar on Macroeconomics 2007, pages 175-216
National Bureau of Economic Research, Inc.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital flows and asset prices," LSE Research Online Documents on Economics 25487, London School of Economics and Political Science, LSE Library.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotak, 2007. "Capital flows and asset prices," LSE Research Online Documents on Economics 3168, London School of Economics and Political Science, LSE Library.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital Flows and Asset Prices," CEP Discussion Papers dp0921, Centre for Economic Performance, LSE.
- Richard H. Clarida, 2007.
"G7 Current Account Imbalances: Sustainability and Adjustment,"
National Bureau of Economic Research, Inc, number clar06-2, September.
- Richard H. Clarida, 2006. "G7 Current Account Imbalances: Sustainability and Adjustment," NBER Working Papers 12194, National Bureau of Economic Research, Inc.
- Juergen von Hagen & Haiping Zhang, 2010.
"International Capital Flows and World Output Gains,"
01-2010, Singapore Management University, School of Economics.
- Jürgen von Hagen, 2009. "International Capital Flows and World Output Gains," 2009 Meeting Papers 311, Society for Economic Dynamics.
- Aoki, Kosuke & Benigno, Gianluca & Kiyotaki, Nobuhiro, 2010.
"Adjusting to Capital Account Liberalization,"
CEPR Discussion Papers
8087, C.E.P.R. Discussion Papers.
- Michael B Devereux & Alan Sutherland, 2009.
"A Portfolio Model of Capital Flows to Emerging Markets,"
082009, Hong Kong Institute for Monetary Research.
- Devereux, Michael B. & Sutherland, Alan, 2009. "A portfolio model of capital flows to emerging markets," Journal of Development Economics, Elsevier, vol. 89(2), pages 181-193, July.
- Matthew Higgins & Thomas Klitgaard & Cédric Tille, 2006. "Borrowing without debt? Understanding the U.S. international investment position," Staff Reports 271, Federal Reserve Bank of New York.
When requesting a correction, please mention this item's handle: RePEc:cpr:ceprdp:7690. See general information about how to correct material in RePEc.
For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: ()
If references are entirely missing, you can add them using this form.