The Elusive Gains from International Financial Integration
42 Pages Posted: 11 May 2003 Last revised: 19 Jun 2022
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The Elusive Gains from International Financial Integration
The Elusive Gains from International Financial Integration
The Elusive Gains from International Financial Integration
Date Written: May 2003
Abstract
Standard theoretical arguments tell us that countries with relatively little capital benefit from financial integration as foreign capital flows in and speeds up the process of convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for the typical emerging country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a one percent permanent increase in domestic consumption for the typical emerging economy. This is negligible relative to the potential welfare gain of a take-off in domestic productivity of the magnitude observed in some of these countries.
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