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Financial Development, Capital Flow, and Income Differences between Countries

  • Kunieda, Takuma

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.

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File URL: https://mpra.ub.uni-muenchen.de/11342/1/MPRA_paper_11342.pdf
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Paper provided by University Library of Munich, Germany in its series MPRA Paper with number 11342.

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Date of creation: 06 Sep 2008
Handle: RePEc:pra:mprapa:11342
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  1. Piketty, Thomas & Banerjee, Abhijit & Aghion, Philippe, 1999. "Dualism and Macroeconomic Volatility," Scholarly Articles 4554124, Harvard University Department of Economics.
  2. Hyeok Jeong & Robert Townsend, 2007. "Sources of TFP growth: occupational choice and financial deepening," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 32(1), pages 179-221, July.
  3. Carmen M. Reinhart & Kenneth S. Rogoff, 2004. "Serial Default and the "Paradox" of Rich-to-Poor Capital Flows," American Economic Review, American Economic Association, vol. 94(2), pages 53-58, May.
  4. Chinn,M.D. & Ito,H., 2005. "What matters for financial development? : capital controls, institutions, and interactions," Working papers 4, Wisconsin Madison - Social Systems.
  5. Edward C. Prescott, 1997. "Needed: a theory of total factor productivity," Staff Report 242, Federal Reserve Bank of Minneapolis.
  6. Kiminori Matsuyama, 2007. "Aggregate Implications of Credit Market Imperfections," NBER Working Papers 13209, National Bureau of Economic Research, Inc.
  7. Galor, Oded & Zeira, Joseph, 7/01. "Income Distribution and Macroeconomics," MPRA Paper 51644, University Library of Munich, Germany, revised 1989/09/01.
  8. M. Ayhan Kose & Eswar Prasad & Kenneth Rogoff & Shang-Jin Wei, 2009. "Financial Globalization: A Reappraisal," Panoeconomicus, Savez ekonomista Vojvodine, Novi Sad, Serbia, vol. 56(2), pages 143-197, June.
  9. Laura Alfaro & Sebnem Kalemli-Ozcan & Vadym Volosovych, 2005. "Why Doesn't Capital Flow from Rich to Poor Countries? An Empirical Investigation," NBER Working Papers 11901, National Bureau of Economic Research, Inc.
  10. Ricardo Lagos, 2006. "A Model of TFP," Review of Economic Studies, Oxford University Press, vol. 73(4), pages 983-1007.
  11. Sebastian Edwards, 2001. "Capital Mobility and Economic Performance: Are Emerging Economies Different?," NBER Working Papers 8076, National Bureau of Economic Research, Inc.
  12. Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2008. "NBER Macroeconomics Annual 2007, Volume 22," NBER Books, National Bureau of Economic Research, Inc, number acem07-1, 08.
  13. Daron Acemoglu & Kenneth Rogoff & Michael Woodford, 2009. "NBER Macroeconomics Annual 2008, Volume 23," NBER Books, National Bureau of Economic Research, Inc, number acem08-1, 08.
  14. Tornell, Aaron & Velasco, Andes, 1992. "The Tragedy of the Commons and Economic Growth: Why Does Capital Flow from Poor to Rich Countries?," Journal of Political Economy, University of Chicago Press, vol. 100(6), pages 1208-1231, December.
  15. Gertler, Mark & Rogoff, Kenneth, 1990. "North-South lending and endogenous domestic capital market inefficiencies," Journal of Monetary Economics, Elsevier, vol. 26(2), pages 245-266, October.
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