Publication Type
Working Paper
Version
publishedVersion
Publication Date
3-2010
Abstract
We develop a two-country overlapping-generations model with domestic financial frictions and show that cross-country differences in financial development explain three recent patterns of international capital flows. In our model, domestic financial frictions distort the interest rates and production efficiency in the less financially developed country. Capital flows not only lead to cross-country resource reallocation, but also trigger within-country resource reallocation among firms. From the efficiency perspective, full capital mobility raises the world output higher than under international financial autarky. If the mobility of either financial capital or foreign direct investment is restricted, the world output may be lower.
Keywords
Capital account liberalization, financial frictions, financial development, foreign direct investment, world output gains
Discipline
International Economics
Research Areas
International Economics
First Page
1
Last Page
41
Publisher
SMU Economics and Statistics Working Paper Series, No. 01-2010
City or Country
Singapore
Citation
von Hagen, Jurgen and ZHANG, Haiping.
International Capital Flows and World Output Gains. (2010). 1-41.
Available at: https://ink.library.smu.edu.sg/soe_research/1143
Copyright Owner and License
Authors
Creative Commons License
This work is licensed under a Creative Commons Attribution-NonCommercial-No Derivative Works 4.0 International License.