Non-Linear Pattern of International Capital Flows

Ly-Dai, Hung (2016): Non-Linear Pattern of International Capital Flows.

Abstract

We establish one non-linear pattern of international capital flows by building up one two-country OLG economy. With symmetric growth and asymmetric interest rate wedges across countries, net total capital inflows are either decreasing or increasing on productivity growth rate. However, with asymmetric growth and asymmetric wedges, they follow one U-shaped curve by first decreasing and then increasing on growth. The turning point of the curve is built on world average growth rate and wedges. Our proposed model can provide an explanation for inconsistencies between theories (i.e, Lucas paradox, up-hill capital flows, and allocation puzzle) about the pattern of international capital flows.

• Item Type: MPRA Paper
• Language: English
• Keywords: Allocation Puzzle, Capital Flows, Financial Frictions, Productivity Growth
• Subjects: F - International Economics > F1 - Trade > F15 - Economic Integration; F - International Economics > F3 - International Finance > F36 - Financial Aspects of Economic Integration; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F43 - Economic Growth of Open Economies

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