IDEAS home Printed from https://ideas.repec.org/p/red/sed004/456.html
   My bibliography  Save this paper

Credit Market Imperfections and International Capital Market Flows

Author

Listed:
  • Bruce Smith
  • Pamela Labadie

Abstract

How will capital market imperfections, such as private information and costly state verification, affect international capital market flows between countries that are identical in every way but their initial capital stocks? To answer this question, we devise a dynamic infinite-horizon model with overlapping generations. Capital production is an increasing and concave function of the amount invested, but the realization of that investment is private information. All factors but financial capital are immobile, so that the net worth of capital producers is closely linked with the capital stock of the country. In a closed-economy, the capital stock of each country will converge to the same steady state. If financial capital is mobile and the initial capital stocks are different, the interest rates will be equalized but the level of investment will differ because of differences in net worth. Financial capital will typically flow from the wealthy to the poor country, but the countries will not converge to the same steady state and capital can, under some conditions, flow the "wrong way."

Suggested Citation

  • Bruce Smith & Pamela Labadie, 2004. "Credit Market Imperfections and International Capital Market Flows," 2004 Meeting Papers 456, Society for Economic Dynamics.
  • Handle: RePEc:red:sed004:456
    as

    Download full text from publisher

    To our knowledge, this item is not available for download. To find whether it is available, there are three options:
    1. Check below whether another version of this item is available online.
    2. Check on the provider's web page whether it is in fact available.
    3. Perform a search for a similarly titled item that would be available.

    More about this item

    Keywords

    costly state verification; capital market flows;

    JEL classification:

    • F00 - International Economics - - General - - - General
    • F34 - International Economics - - International Finance - - - International Lending and Debt Problems

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:red:sed004:456. See general information about how to correct material in RePEc.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: (Christian Zimmermann). General contact details of provider: http://edirc.repec.org/data/sedddea.html .

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    We have no references for this item. You can help adding them by using this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service hosted by the Research Division of the Federal Reserve Bank of St. Louis . RePEc uses bibliographic data supplied by the respective publishers.