IDEAS home Printed from https://ideas.repec.org/
MyIDEAS: Login to save this paper or follow this series

A Global Dynamics of Financial Integration under Capital Market Imperfection -Delaying Financial Liberalization -

  • Masaya Sakuragawa

    (Department of Economics, Keio University)

  • Hiroto Takahashi

    (Institute of Economic Research, Kyoto University)

Registered author(s):

    We investigate the global dynamics of financial integration by constructing a two-country model of overlapping generations in the presence of financial market frictions. The inversed U-shaped relation between the interest rate and the capital stock brought about by imperfect enforcement becomes the source of the destabilizing behavior of the world financial market. We characterize the global dynamics that allow us to answer when and how the globalization magnifies and lessens symmetry-breaking. We observe symmetry-breaking accompanied by continued capital flows from the poor to the rich when there are stable asymmetric steady states. However, when the stable symmetric steady state coexists with asymmetric ones, we observe either convergence or symmetry-breaking, depending on developing stages when financial integration occurs. There are threshold levels of wealth only above which financial integration leads to convergence. Even when there is the unique stable steady state, we observe the short-run symmetry-breaking accompanied by the endogenous reversal of capital flows. We have cases when early financial integration leads to symmetry-breaking, but late one attains convergence. Emerging market countries can go on the convergent path by delaying the timing of opening capital accounts until they have reached some threshold level of wealth.

    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://ies.keio.ac.jp/old_project/old/gcoe-econbus/pdf/dp/DP2009-003.pdf
    Download Restriction: no

    Paper provided by Keio/Kyoto Joint Global COE Program in its series Keio/Kyoto Joint Global COE Discussion Paper Series with number 2009-003.

    as
    in new window

    Length: 50 pages
    Date of creation: 2009
    Date of revision:
    Handle: RePEc:kei:dpaper:2009-003
    Contact details of provider: Postal: 2-15-45, Mita, Minato-ku, Tokyo 108-8345
    Phone: 81-3-3453-4511
    Web page: http://ies.keio.ac.jp/old_project/old/gcoe-econbus/

    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. Leonardo Bartolini & Allan Drazen, 1996. "Capital Account Liberalization as a Signal," NBER Working Papers 5725, National Bureau of Economic Research, Inc.
    2. Chinn, Menzie David & Ito, Hiro, 2005. "What Matters for Financial Development? Capital Controls, Institutions, and Interactions," Santa Cruz Center for International Economics, Working Paper Series qt5pv1j341, Center for International Economics, UC Santa Cruz.
    3. Eswar S. Prasad & Raghuram G. Rajan, 2008. "A Pragmatic Approach to Capital Account Liberalization," Journal of Economic Perspectives, American Economic Association, vol. 22(3), pages 149-72, Summer.
    4. Portes, Richard & Rey, Helene, 2005. "The determinants of cross-border equity flows," Journal of International Economics, Elsevier, vol. 65(2), pages 269-296, March.
    5. Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital Flows and Asset Prices," CEP Discussion Papers dp0921, Centre for Economic Performance, LSE.
      • Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital Flows and Asset Prices," NBER Chapters, in: NBER International Seminar on Macroeconomics 2007, pages 175-216 National Bureau of Economic Research, Inc.
    6. Pierre-Olivier Gourinchas & Olivier Jeanne, 2007. "Capital Flows to Developing Countries: The Allocation Puzzle," NBER Working Papers 13602, National Bureau of Economic Research, Inc.
    7. Fernando Broner & Jaume Ventura, 2011. "Globalization and Risk Sharing," Review of Economic Studies, Oxford University Press, vol. 78(1), pages 49-82.
    8. Reinhart, Carmen & Calvo, Guillermo & Leiderman, Leonardo, 1996. "Inflows of capital to developing countries in the 1990s," MPRA Paper 13707, University Library of Munich, Germany.
    9. Sakuragawa, Masaya & Hamada, Koichi, 2001. "Capital Flight, North-South Lending and Stages of Economic Development," International Economic Review, Department of Economics, University of Pennsylvania and Osaka University Institute of Social and Economic Research Association, vol. 42(1), pages 1-24, February.
    10. Beck, Thorsten & Levine, Ross & Loayza, Norman, 2000. "Finance and the sources of growth," Journal of Financial Economics, Elsevier, vol. 58(1-2), pages 261-300.
    11. repec:ner:tilbur:urn:nbn:nl:ui:12-3125520 is not listed on IDEAS
    12. Leonardo Leiderman & Guillermo A. Calvo & Carmen Reinhart, 1994. "Inflows of Capital to Developing Countries in the 1990s: Causes and Effects," Research Department Publications 4002, Inter-American Development Bank, Research Department.
    13. Nobuhiro Kiyotaki & John Moore, 1995. "Credit Cycles," NBER Working Papers 5083, National Bureau of Economic Research, Inc.
    14. Reinhart, Carmen & Rogoff, Kenneth, 2004. "Serial default and the “paradox” of rich to poor capital flows," MPRA Paper 13997, University Library of Munich, Germany.
    15. Braun, Matias & Raddatz, Claudio, 2007. "Trade liberalization, capital account liberalization and the real effects of financial development," Journal of International Money and Finance, Elsevier, vol. 26(5), pages 730-761, September.
    16. Townsend, Robert M., 1979. "Optimal contracts and competitive markets with costly state verification," Journal of Economic Theory, Elsevier, vol. 21(2), pages 265-293, October.
    17. Avinash Dixit, 2003. "Trade Expansion and Contract Enforcement," Journal of Political Economy, University of Chicago Press, vol. 111(6), pages 1293-1317, December.
    18. Geert Bekaert & Campbell R. Harvey & Christian Lundblad, 2000. "Emerging Equity Markets and Economic Development," NBER Working Papers 7763, National Bureau of Economic Research, Inc.
    19. Kiminori Matsuyama, 2007. "Credit Traps and Credit Cycles," American Economic Review, American Economic Association, vol. 97(1), pages 503-516, March.
    20. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-31, December.
    21. 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.
    22. Sebnem Kalemli-Ozcan & Laura Alfaro & Selin Sayek & Areendam Chanda, 2002. "FDI and Economic Growth: The Role of Local Financial Markets," Macroeconomics 0212007, EconWPA.
    23. Reinhart, Carmen M. & Rogoff, Kenneth S., 2004. "Serial Default and the “Paradox†of Rich-to-Poor Capital Flows," Scholarly Articles 11129182, Harvard University Department of Economics.
    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:kei:dpaper:2009-003. 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: (Global COE Program Office)

    The email address of this maintainer does not seem to be valid anymore. Please ask Global COE Program Office to update the entry or send us the correct address

    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.