IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Log in (now much improved!) to save this paper

Short-Run Pain, Long-Run Gain : the Conditional Welfare Gains from International Financial Integration

This paper aims at clarifying the conditions under which financial globalization originates welfare gains in a simple endogenous growth setting. We focus on the capital-deepening effect of financial globalization in an open-economy AK model and we show that collateral-constrained borrowing triggers substantial welfare gains, even at small levels of international financial integration, provided that the autarkic growth rate is larger than the world interest rate. Such conditional welfare benefits boosted by stronger growth - long-run gain - are shown to be robust to relaxing the assumption of investment commitment, which generates growth breaks and hampers welfare. For reasonable parameter values and relative to autarky, welfare gains range from about 2% in middle-income countries to about 13% in OECD-type countries under international Financial integration. Sizeable benefits emerge despite the fact that consumption falls when the economy switches from autarky to financial integration - short-run pain - which is however shown not to dwarf positive welfare changes.

If you experience problems downloading a file, check if you have the proper application to view it first. In case of further problems read the IDEAS help page. Note that these files are not on the IDEAS site. Please be patient as the files may be large.

File URL: http://epee.univ-evry.fr/RePEc/2012/12-14.pdf
Download Restriction: no

Paper provided by Centre d'Études des Politiques Économiques (EPEE), Université d'Evry Val d'Essonne in its series Documents de recherche with number 12-14.

as
in new window

Length: 46 pages
Date of creation: Nov 2012
Date of revision:
Handle: RePEc:eve:wpaper:12-14
Contact details of provider: Postal:
4, bld Francois Mitterand, 91025 Evry Cedex

Phone: +33 1 69 47 71 77
Fax: +33 1 69 47 70 50
Web page: http://epee.univ-evry.fr

More information through EDIRC

References listed on IDEAS
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.:

as in new window
  1. Romain Rancière & Aaron Tornell & Frank Westermann, 2008. "Systemic Crises and Growth," The Quarterly Journal of Economics, Oxford University Press, vol. 123(1), pages 359-406.
  2. Robert J. Barro & N. Gregory Mankiw & Xavier Sala-i-Martin, 1992. "Capital Mobility in Neoclassical Models of Growth," NBER Working Papers 4206, National Bureau of Economic Research, Inc.
  3. Henry, Peter B., 2003. "Capital Account Liberalization, The Cost of Capital, and Economic Growth," Research Papers 1778, Stanford University, Graduate School of Business.
  4. Simeon Djankov & Oliver Hart & Caralee McLiesh & Andrei Shleifer, 2008. "Debt Enforcement around the World," Journal of Political Economy, University of Chicago Press, vol. 116(6), pages 1105-1149, December.
  5. Benjamin F. Jones & Benjamin A. Olken, 2008. "The Anatomy of Start-Stop Growth," The Review of Economics and Statistics, MIT Press, vol. 90(3), pages 582-587, August.
  6. Maurice Obstfeld., 1993. "Risk-Taking, Global Diversification, and Growth," Center for International and Development Economics Research (CIDER) Working Papers C93-016, University of California at Berkeley.
  7. Daron Acemoglu & Fabrizio Zilibotti, 1994. "Was Prometheus unbound by chance? Risk, diversification and growth," Economics Working Papers 98, Department of Economics and Business, Universitat Pompeu Fabra.
  8. 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.
  9. Raouf Boucekkine & Giorgio Fabbri & Patrick-Antoine Pintus, 2011. "On the optimal control of a linear neutral differential equation arising in economics," Working Papers halshs-00576770, HAL.
  10. Eswar S. Prasad & Kenneth S. Rogoff & Shang-Jin Wei & M. Ayhan Kose, 2004. "Financial Globalization, Growth and Volatility in Developing Countries," NBER Working Papers 10942, National Bureau of Economic Research, Inc.
  11. M. Ayhan Kose & Eswar Prasad & Kenneth S. Rogoff & Shang-Jin Wei, 2006. "Financial Globalization: A Reappraisal," NBER Working Papers 12484, National Bureau of Economic Research, Inc.
  12. Cuberes, David & Jerzmanowski, Michal, 2008. "Democracy, Diversification, and Growth Reversals," MPRA Paper 11646, University Library of Munich, Germany.
  13. Daniel Cohen & Jeffrey Sachs, 1985. "Growth and External Debt Under Risk of Debt Repudiation," NBER Working Papers 1703, National Bureau of Economic Research, Inc.
  14. Pol Antràs & Ricardo J. Caballero, 2007. "Trade and Capital Flows: A Financial Frictions Perspective," NBER Working Papers 13241, National Bureau of Economic Research, Inc.
  15. Jonathan Eaton & Mark Gersovitz, 1981. "Debt with Potential Repudiation: Theoretical and Empirical Analysis," Review of Economic Studies, Oxford University Press, vol. 48(2), pages 289-309.
  16. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," IMF Staff Papers, Palgrave Macmillan, vol. 56(1), pages 63-111, April.
  17. BOUCEKKINE, Raouf & PINTUS, Patrick A., . "History's a curse: leapfrogging, growth breaks and growth reversals under international borrowing without commitment," CORE Discussion Papers RP 2450, Université catholique de Louvain, Center for Operations Research and Econometrics (CORE).
  18. Michael B. Devereux & James Yetman, 2010. "Leverage Constraints and the International Transmission of Shocks," Working Papers 132010, Hong Kong Institute for Monetary Research.
  19. Enrique G. Mendoza, 2010. "Sudden Stops, Financial Crises, and Leverage," American Economic Review, American Economic Association, vol. 100(5), pages 1941-66, December.
  20. Moritz Schularick & Thomas M Steger, 2010. "Financial Integration, Investment, and Economic Growth: Evidence from Two Eras of Financial Globalization," The Review of Economics and Statistics, MIT Press, vol. 92(4), pages 756-768, November.
  21. Bacchetta, Philippe & Aghion, Philippe & Banerjee, Abhijit, 2004. "Financial Development and the Instability of Open Economies," Scholarly Articles 4554209, Harvard University Department of Economics.
  22. Matthieu Bussière & Marcel Fratzscher, 2008. "Financial Openness and Growth: Short-run Gain, Long-run Pain?," Review of International Economics, Wiley Blackwell, vol. 16(1), pages 69-95, 02.
  23. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2010. "Adjusting to Capital Account Liberalization," CEP Discussion Papers dp1014, Centre for Economic Performance, LSE.
  24. Eric Van Wincoop, 1998. "How big are potential welfare gains from international risksharing?," Staff Reports 37, Federal Reserve Bank of New York.
  25. Maurice Obstfeld, 2009. "International Finance and Growth in Developing Countries: What Have We Learned?," NBER Working Papers 14691, National Bureau of Economic Research, Inc.
  26. Graciela Laura Kaminsky & Sergio L. Schmukler, 2008. "Short-Run Pain, Long-Run Gain: Financial Liberalization and Stock Market Cycles," Review of Finance, European Finance Association, vol. 12(2), pages 253-292.
  27. Gadi Barlevy, 2004. "The Cost of Business Cycles Under Endogenous Growth," American Economic Review, American Economic Association, vol. 94(4), pages 964-990, September.
Full references (including those not matched with items on IDEAS)

This item is not listed on Wikipedia, on a reading list or among the top items on IDEAS.

When requesting a correction, please mention this item's handle: RePEc:eve:wpaper:12-14. 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: (Samuel Nosel)

If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

If references are entirely missing, you can add them using this form.

If the full references list an item that is present in RePEc, but the system did not link to it, you can help with this form.

If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your profile, as there may be some citations waiting for confirmation.

Please note that corrections may take a couple of weeks to filter through the various RePEc services.

This information is provided to you by IDEAS at the Research Division of the Federal Reserve Bank of St. Louis using RePEc data.