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International Capital Movements Under Uncertainty

  • Gene M. Grossman
  • Assaf Razin

In this paper, we analyze the determinants of international movements of physical capital in a model with uncertainty and international trade in goods and securities.In our model, the world allocation of capital is governed, to some extent, by the asset preferences of risk averse consumer-investors. In a one-good variant in the spirit of the MacDougall model, we find that relative factor abundance, relative labor force size and relative production riskiness have separate but interrelated influences on the direction of equilibrium capital movements.These same factors remain important in a two-good version with Heckscher-Ohlin production structure. In this case, the direction of physical capital flow is determinate (unlike in a world of certaint and may hinge on the identity of the factor which is used intensively in the industry with random technology.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 1075.

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Date of creation: Feb 1983
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Publication status: published as Grossman, Gene M. and Assaf Razin. "International Capital Movements Under Uncertainty." Journal of Political Economy, Vol. 92, No. 2, (April 1984), pp . 286-306.
Handle: RePEc:nbr:nberwo:1075
Note: ITI IFM
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  1. Anderson, James E., 1981. "The Heckscher-Ohlin and Travis-Vanek theorems under uncertainty," Journal of International Economics, Elsevier, vol. 11(2), pages 239-247, May.
  2. Helpman, Elhanan & Razin, Assaf, 1978. "A theory of international trade under uncertainty," MPRA Paper 22112, University Library of Munich, Germany.
  3. G. D. A. MacDougall, 1960. "THE BENEFITS and COSTS OF PRIVATE INVESTMENT FROM ABROAD: A THEORETICAL APPROACH," The Economic Record, The Economic Society of Australia, vol. 36(73), pages 13-35, 03.
  4. Batra, Raveendra N, 1975. "Production Uncertainty and the Heckscher-Ohlin Theorem," Review of Economic Studies, Wiley Blackwell, vol. 42(2), pages 259-68, April.
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