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Financial Development, Capital Flow, and Income Differences between Countries

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  • Kunieda, Takuma

Abstract

This paper demonstrates with a simple two-country general equilibrium model that the difference in the levels of financial development between countries determines the direction of capital movement and that for some parameter values, if financial markets are integrated internationally, countries with a poorly developed financial sector are never industrialized, while if they had remained closed economies, they would have experienced steady endogenous growth. This result is consistent with a traditional but non-mainstream view of structuralists and gives a theoretical foundation for capital flow regulations which are often imposed by developing countries.

Suggested Citation

  • Kunieda, Takuma, 2008. "Financial Development, Capital Flow, and Income Differences between Countries," MPRA Paper 11342, University Library of Munich, Germany.
    • Handle: RePEc:pra:mprapa:11342
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    File URL: https://mpra.ub.uni-muenchen.de/11342/1/MPRA_paper_11342.pdf
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    References listed on IDEAS

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    Cited by:

    1. Manmohan Agarwal & Pragya Atri & Srikanta Kundu, 2017. "Foreign Direct Investment and Poverty Reduction," South Asia Economic Journal, Institute of Policy Studies of Sri Lanka, vol. 18(2), pages 135-157, September.
    2. Guido Baldi, 2013. "Physical And Human Capital Accumulation And The Evolution Of Income And Inequality," Journal of Economic Development, Chung-Ang Unviersity, Department of Economics, vol. 38(3), pages 57-83, September.

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    More about this item

    Keywords

    Financial development; Capital flow; Income differences between countries; Credit market imperfections; Two-country model;
    All these keywords.

    JEL classification:

    • O43 - Economic Development, Innovation, Technological Change, and Growth - - Economic Growth and Aggregate Productivity - - - Institutions and Growth
    • F2 - International Economics - - International Factor Movements and International Business

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