International Capital Flows and Domestic Economic Policies
This paper, written for the NBER Conference on the Changing Role of the United States in the World Economy, covers the capital account in the U.S. balance of payments. It first traces the history from 1946 to 1980, a period throughout which Americans were steadily building up a positive net foreign investment position. It subsequently describes the historic swing of the capital account in the 1980s toward massive borrowing from abroad. There are various factors, in addition to expected rates of return, that encourage or discourage international capital flows: transactions costs, government controls, taxes, default and other political risk and exchange risk. But the paper argues that the increase in real interest rates and other expected rates of return in the United States, relative to other countries, in the early 1980s was the major factor that began to attract large net capital inflows. It concludes that a large increase in the U.S. federal budget deficit, which was not offset by increased private saving, was the major factor behind the increase in real interest rates, and therefore behind the switch to borrowing from abroad.
|Date of creation:||Apr 1987|
|Date of revision:|
|Publication status:||published as Frankel, Jeffrey A. "International Capital Flows and Domestic Economic Problems," The United States in the World Economy, ed. by Martin Feldstein. Chicago: UCP, 1988.|
|Contact details of provider:|| Postal: National Bureau of Economic Research, 1050 Massachusetts Avenue Cambridge, MA 02138, U.S.A.|
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- Benjamin M. Friedman, 1986. "Implications of the U.S. Net Capital Inflow," NBER Working Papers 1804, National Bureau of Economic Research, Inc.
- Martin Feldstein, 1986.
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- Guido E. Van der Ven & John F. Wilson, 1986. "The United States international asset and liability position: a comparison of flow of funds and Commerce department presentations," International Finance Discussion Papers 295, Board of Governors of the Federal Reserve System (U.S.).
- K. Alec Chrystal, 1984. "International banking facilities," Review, Federal Reserve Bank of St. Louis, issue Apr, pages 5-11.
- Arvind Mahajan & Donald R Fraser, 1986. "Dollar Eurobond and U.S. Bond Pricing," Journal of International Business Studies, Palgrave Macmillan, vol. 17(2), pages 21-36, June.
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