The Elusive Gains from International Financial Integration

42 Pages Posted: 11 May 2003 Last revised: 19 Jun 2022

See all articles by Pierre-Olivier Gourinchas

Pierre-Olivier Gourinchas

University of California, Berkeley - Department of Economics; University of California, Berkeley - Economic Analysis & Policy Group; National Bureau of Economic Research (NBER); Centre for Economic Policy Research (CEPR)

Olivier Jeanne

International Monetary Fund (IMF) - Research Department; Ecole Nationale des Ponts et Chaussees (ENPC); Centre for Economic Policy Research (CEPR)

Multiple version iconThere are 3 versions of this paper

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.

Suggested Citation

Gourinchas, Pierre-Olivier and Jeanne, Olivier, The Elusive Gains from International Financial Integration (May 2003). NBER Working Paper No. w9684, Available at SSRN: https://ssrn.com/abstract=406056

Pierre-Olivier Gourinchas (Contact Author)

University of California, Berkeley - Department of Economics ( email )

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University of California, Berkeley - Economic Analysis & Policy Group ( email )

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National Bureau of Economic Research (NBER)

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Olivier Jeanne

International Monetary Fund (IMF) - Research Department ( email )

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Centre for Economic Policy Research (CEPR)

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United Kingdom

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