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Financial Integration, Technology Differences and Capital Flows


  • Sebastián Claro

    () (Instituto de Economía. Pontificia Universidad Católica de Chile.)


The one-to-one mapping between cross-country differences in capital returns and the size and direction of international capital flows after financial integration vanishes in a multi-sector world with a laborintensive non-tradable sector if financial liberalization generates significant swings in the demand for the non-tradable good. For example, a high return to capital country may become an exporter of capital after financial integration if access to world capital markets enhances demand for the non-tradable good. Because domestic wages are determined by the competitiveness conditions in tradable industries, excess demand for labor created by the expansion of non-tradable demand is eliminated with capital outflows. These "non-standard" effects of financial integration on non-tradable demand are possible, for example, if financial liberalization affects the rate of productivity growth.

Suggested Citation

  • Sebastián Claro, 2005. "Financial Integration, Technology Differences and Capital Flows," Documentos de Trabajo 306, Instituto de Economia. Pontificia Universidad Católica de Chile..
  • Handle: RePEc:ioe:doctra:306

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    Cited by:

    1. Rodrigo Fuentes & Verónica Mies, 2007. "Development Paths and Dynamic Comparative Advantages: When Leamer Met Solow," Working Papers Central Bank of Chile 453, Central Bank of Chile.

    More about this item


    Financial integration; technology differences; capital flows; international factor price differences;

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F21 - International Economics - - International Factor Movements and International Business - - - International Investment; Long-Term Capital Movements
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics


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