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International Capital Flows in Club of Convergence

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  • Ly-Dai, Hung

Abstract

We explain U-shape pattern of international capital inflows by one multi-country OLG economy and one cross-section data sample. The theory proves that capital inflows are decreasing on distance to frontier, which is measured by ratio of domestic productivity level over United States’ level. The evidences not only confirm the theory but also reveal that growth is decreasing on distance to frontier for club of convergence but increasing for club of unconvergence. Therefore, Neo-Classical growth model’s implication, that capital inflows are positively correlated to growth, applies for club of convergence. However, Allocation puzzle, that capital inflows are negatively correlated to growth, works for club of unconvergence. The turning point of U-shape pattern is the productivity growth rate at world technology frontier.

Suggested Citation

  • Ly-Dai, Hung, 2018. "International Capital Flows in Club of Convergence," MPRA Paper 90232, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:90232
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    References listed on IDEAS

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    More about this item

    Keywords

    International Capital Flows; Productivity Growth; Relative Convergence;
    All these keywords.

    JEL classification:

    • F15 - International Economics - - Trade - - - Economic Integration
    • F36 - International Economics - - International Finance - - - Financial Aspects of Economic Integration
    • F43 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Economic Growth of Open Economies

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