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The Elusive Gains from International Financial Integration

  • Pierre-Olivier Gourinchas
  • Olivier Jeanne

Standard theoretical arguments tell us that countries with relatively little capital benefit from financial integration as foreign capital flows in and speeds up the process of convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for the typical emerging country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a one percent permanent increase in domestic consumption for the typical emerging economy. This is negligible relative to the potential welfare gain of a take-off in domestic productivity of the magnitude observed in some of these countries.

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Paper provided by National Bureau of Economic Research, Inc in its series NBER Working Papers with number 9684.

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Date of creation: May 2003
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Publication status: published as Gourinchas, Pierre-Olivier and Olivier Jeanne. "The Elusive Gains From International Financial Integration," Review of Economic Studies, 2006, v73(3,Jul), 715-741.
Handle: RePEc:nbr:nberwo:9684
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