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International Capital Movements Under Uncertainty

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  • Gene M. Grossman
  • Assaf Razin

Abstract

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.

Suggested Citation

  • Gene M. Grossman & Assaf Razin, 1983. "International Capital Movements Under Uncertainty," NBER Working Papers 1075, National Bureau of Economic Research, Inc.
  • Handle: RePEc:nbr:nberwo:1075
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    References listed on IDEAS

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    1. Helpman, Elhanan & Razin, Assaf, 1979. "A Theory of International Trade Under Uncertainty," Elsevier Monographs, Elsevier, edition 1, number 9780123396501 edited by Shell, Karl.
    2. 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, March.
    3. 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.
    4. Raveendra N. Batra, 1975. "Production Uncertainty and the Heckscher-Ohlin Theorem," Review of Economic Studies, Oxford University Press, vol. 42(2), pages 259-268.
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    Cited by:

    1. Adugna Lemi & Sisay Asefa, 2009. "Differential Impacts of Economic Volatility and Governance on Manufacturing and Non-Manufacturing Foreign Direct Investments: The Case of US Multinationals in Africa," Eastern Economic Journal, Palgrave Macmillan;Eastern Economic Association, vol. 35(3), pages 367-395.
    2. Devereux, Michael B. & Saito, Makoto, 1997. "Growth and risk-sharing with incomplete international assets markets," Journal of International Economics, Elsevier, vol. 42(3-4), pages 453-481, May.
    3. Svensson, Lars E O, 1988. "Trade in Risky Assets," American Economic Review, American Economic Association, vol. 78(3), pages 375-394, June.
    4. Zymek, Robert, 2015. "Factor proportions and the growth of world trade," Journal of International Economics, Elsevier, vol. 95(1), pages 42-53.
    5. Bidarkota, Prasad & Crucini, Mario J, 2000. "Commodity Prices and the Terms of Trade," Review of International Economics, Wiley Blackwell, vol. 8(4), pages 647-666, November.
    6. Razin, Assaf & Sadka, Efraim, 1993. "International migration and international trade," Handbook of Population and Family Economics,in: M. R. Rosenzweig & Stark, O. (ed.), Handbook of Population and Family Economics, edition 1, volume 1, chapter 15, pages 851-887 Elsevier.
    7. Sebnem Kalemli-Ozcan, 2011. "Comment on "The Risk Content of Exports: A Portfolio View of International Trade"," NBER Chapters,in: NBER International Seminar on Macroeconomics 2011, pages 152-157 National Bureau of Economic Research, Inc.
    8. Cuddington, John T & Liang, Hong & Lu, Shihua, 1996. "Uncertainty, Trade, and Capital Flows in Sub-Saharan Africa," Journal of African Economies, Centre for the Study of African Economies (CSAE), vol. 5(3), pages 192-224, October.
    9. Sebnem Kalemli-Ozcan & Bent E. Sørensen & Oved Yosha, 2003. "Risk Sharing and Industrial Specialization: Regional and International Evidence," American Economic Review, American Economic Association, vol. 93(3), pages 903-918, June.
    10. Kalemli-Ozcan, Sebnem & Sørensen, Bent E & Yosha, Oved, 2004. "Asymmetric Shocks and Risk Sharing in a Monetary Union: Updated Evidence and Policy Implications for Europe," CEPR Discussion Papers 4463, C.E.P.R. Discussion Papers.
    11. Meon, Pierre-Guillaume & Weill, Laurent, 2004. "A view of the European Union as an evolving country portfolio," European Journal of Political Economy, Elsevier, vol. 20(4), pages 853-868, November.
    12. Jordi Pons-Novell & Daniel Tirado-Fabregat, 2006. "Specialization and asymmetries in macroeconomic fluctuations: Evidence for the European regions," Regional Studies, Taylor & Francis Journals, vol. 40(7), pages 695-706.
    13. Sebnem Kalemi-Ozcan & Bent E. Sorensen & Oved Yosha, 2000. "Risk Sharing and Sectoral Specialization: Regional and International Evidence," Econometric Society World Congress 2000 Contributed Papers 1582, Econometric Society.
    14. Carol L. Osler, 1988. "Terms of Trade and the Transmission of Output Shocks in a Rational Expectations Model," NBER Working Papers 2681, National Bureau of Economic Research, Inc.
    15. Carol L. Osler, 1987. "Factor Prices and Welfare Under Integrated Capital Markets," NBER Working Papers 2447, National Bureau of Economic Research, Inc.
    16. Ramondo, Natalia & Rappoport, Veronica, 2010. "The role of multinational production in a risky environment," Journal of International Economics, Elsevier, vol. 81(2), pages 240-252, July.

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