International Capital Flows with Limited Commitment and Incomplete Markets
Recent literature has proposed two alternative types of financial frictions, i.e., limited commitment and incomplete markets, to explain the patterns of international capital flows between developed and developing countries observed in the past two decades. This paper integrates both types of frictions into a two-country overlapping-generations framework to facilitate a direct comparison of their e ects. In our model, limited commitment distorts the investment made by agents with different productivity, which creates a wedge between the interest rates on equity capital vs. credit capital; while incomplete markets distort the investment among projects with different riskiness, which creates a wedge between the risk-free rate and the mean rate of return to risky capital. We show that the two approaches are observationally equivalent with respect to their implications for international capital flows, production eciency, and aggregate output.
|Date of creation:||Dec 2011|
|Date of revision:|
|Publication status:||Published in SMU Economics and Statistics Working Paper Series|
|Contact details of provider:|| Postal: 90 Stamford Road, Singapore 178903|
Phone: 65-6828 0832
Fax: 65-6828 0833
Web page: http://www.economics.smu.edu.sg/
More information through EDIRC
|Order Information:|| Email: |
Please report citation or reference errors to , or , if you are the registered author of the cited work, log in to your RePEc Author Service profile, click on "citations" and make appropriate adjustments.:
- Francisco J. Buera & Yongseok Shin, 2009. "Productivity Growth and Capital Flows: The Dynamics of Reforms," NBER Working Papers 15268, National Bureau of Economic Research, Inc.
- Carroll, Christopher D. & Jeanne, Olivier, 2009.
"A tractable model of precautionary reserves, net foreign assets, or sovereign wealth funds,"
CFS Working Paper Series
2009/15, Center for Financial Studies (CFS).
- Carroll, Christopher D & Jeanne, Olivier, 2009. "A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds," CEPR Discussion Papers 7449, C.E.P.R. Discussion Papers.
- Christopher D. Carroll & Olivier Jeanne, 2009. "A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds," Working Paper Series WP09-10, Peterson Institute for International Economics.
- Christopher D. Carroll & Olivier Jeanne, 2009. "A Tractable Model of Precautionary Reserves, Net Foreign Assets, or Sovereign Wealth Funds," NBER Working Papers 15228, National Bureau of Economic Research, Inc.
- Tille, Cédric & van Wincoop, Eric, 2008.
"International Capital Flows under Dispersed Information: Theory and Evidence,"
CEPR Discussion Papers
6989, C.E.P.R. Discussion Papers.
- Cédric Tille & Eric van Wincoop, 2008. "International Capital Flows under Dispersed Information: Theory and Evidence," NBER Working Papers 14390, National Bureau of Economic Research, Inc.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009.
"Capital Flows and Asset Prices,"
CEP Discussion Papers
dp0921, Centre for Economic Performance, LSE.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotaki, 2009. "Capital flows and asset prices," LSE Research Online Documents on Economics 25487, London School of Economics and Political Science, LSE Library.
- Kosuke Aoki & Gianluca Benigno & Nobuhiro Kiyotak, 2007. "Capital flows and asset prices," LSE Research Online Documents on Economics 3168, London School of Economics and Political Science, LSE Library.
- Keith Acheson, 2011.
in: A Handbook of Cultural Economics, Second Edition, chapter 31
Edward Elgar Publishing.
- Zheng Song & Kjetil Storesletten & Fabrizio Zilibotti, 2011.
"Growing Like China,"
American Economic Review,
American Economic Association, vol. 101(1), pages 196-233, February.
- Matthew Higgins & Thomas Klitgaard & Cédric Tille, 2006. "Borrowing without debt? Understanding the U.S. international investment position," Staff Reports 271, Federal Reserve Bank of New York.
- Michael B Devereux & Alan Sutherland, 2009.
"A Portfolio Model of Capital Flows to Emerging Markets,"
082009, Hong Kong Institute for Monetary Research.
- Devereux, Michael B. & Sutherland, Alan, 2009. "A portfolio model of capital flows to emerging markets," Journal of Development Economics, Elsevier, vol. 89(2), pages 181-193, July.
- Marianne P. Bitler & Tobias J. Moskowitz & Annette Vissing-Jørgensen, 2005. "Testing Agency Theory with Entrepreneur Effort and Wealth," Journal of Finance, American Finance Association, vol. 60(2), pages 539-576, 04.
- Diego Valderrama & Katherine Smith, 2009. "Why Do Emerging Economies Import Direct Investment and Export Savings? A Story of Financial Underdevelopment," 2009 Meeting Papers 1160, Society for Economic Dynamics.
- Damiano Sandri, 2014.
"Growth and Capital Flows with Risky Entrepreneurship,"
American Economic Journal: Macroeconomics,
American Economic Association, vol. 6(3), pages 102-23, July.
- Damiano Sandri, 2010. "Growth and Capital Flows with Risky Entrepreneurship," IMF Working Papers 10/37, International Monetary Fund.
- Selden, Larry, 1978. "A New Representation of Preferences over "Certain A Uncertain" Consumption Pairs: The "Ordinal Certainty Equivalent" Hypothesis," Econometrica, Econometric Society, vol. 46(5), pages 1045-60, September.
When requesting a correction, please mention this item's handle: RePEc:siu:wpaper:17-2011. 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: (QL THor)
If references are entirely missing, you can add them using this form.