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Financial Development and the Patterns of International Capital Flows

Author

Listed:
  • Jurgen von Hagen

    (University of Bonn, Indiana University and CEPR)

  • Haiping Zhang

    (School of Economics, Singapore Management University)

Abstract

We develop a tractable two-country overlapping-generations model and show that cross-country differences in financial development can explain three recent empirical patterns of international capital flows: Financial capital flows from relatively poor to relatively rich countries while foreign direct investment fl ows in the opposite direction; net capital flows go from poor to rich countries; despite of its negative net international investment positions, the United States receives a positive net investment income. We also explore the welfare and distributional effects of international capital fl ows and show that the patterns of capital fl ows may reverse along the convergence process of a developing country.

Suggested Citation

  • Jurgen von Hagen & Haiping Zhang, 2011. "Financial Development and the Patterns of International Capital Flows," Working Papers 21-2011, Singapore Management University, School of Economics.
    • Handle: RePEc:siu:wpaper:21-2011
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    References listed on IDEAS

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    Citations

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    Cited by:

    1. Jürgen von Hagen & Haiping Zhang, 2014. "International Capital Flows in the Model with Limited Commitment and Incomplete Markets," Open Economies Review, Springer, vol. 25(1), pages 195-224, February.
    2. Pengfei Wang & Yi Wen & Zhiwei Xu, 2012. "Two-way capital flows and global imbalances: a neoclassical approach," Working Papers 2012-016, Federal Reserve Bank of St. Louis.
    3. Ning Zhang, 2017. "Two-way capital flows: A risk-sharing approach," Working Papers 2019-09, Business School - Economics, University of Glasgow.
    4. von Hagen, Jürgen & Zhang, Haiping, 2014. "Financial development, international capital flows, and aggregate output," Journal of Development Economics, Elsevier, vol. 106(C), pages 66-77.
    5. Ning Zhang, 2017. "Two-way capital flows: A risk-sharing approach," Working Papers 2019_09, Business School - Economics, University of Glasgow.

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    More about this item

    Keywords

    Capital account liberalization; financial development; foreign direct investment; symmetry breaking;
    All these keywords.

    JEL classification:

    • E44 - Macroeconomics and Monetary Economics - - Money and Interest Rates - - - Financial Markets and the Macroeconomy
    • F41 - International Economics - - Macroeconomic Aspects of International Trade and Finance - - - Open Economy Macroeconomics

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