International Capital Flows and Aggregate Output
35 Pages Posted: 26 May 2011
Date Written: May 2011
Abstract
We show in a tractable, multi-country OLG model that cross-country differences in financial development explain three recent empirical patterns of international capital flows. International capital mobility affects output in each country directly through the size of domestic investment as well as indirectly through the composition of domestic investment and the level of domestic savings. In contrast to earlier literature, our model admits the possibility that the indirect effects dominate the direct effects and international capital mobility raises output in the poor country and globally, although net capital flows are in the direction of the rich country. Our model adds to the understanding of the benefits of international capital mobility in the presence of financial frictions.
Keywords: capital market imperfections, financial development, financial frictions, foreign direct investment, international capital movements
JEL Classification: E44, F41
Suggested Citation: Suggested Citation
Do you have negative results from your research you’d like to share?
Recommended Papers
-
The Impact of Exchange Rate Movements on U.S. Foreign Debt
By Cédric Tille
-
An Equilibrium Model of Global Imbalances and Low Interest Rates
By Ricardo J. Caballero, Emmanuel Farhi, ...
-
An Equilibrium Model of "Global Imbalances" and Low Interest Rates
By Ricardo J. Caballero, Emmanuel Farhi, ...