International Capital Flows in Club of Convergence

Ly-Dai, Hung (2018): International Capital Flows in Club of Convergence.

Abstract

We explain U-shape pattern of international capital inflows by one multi-country OLG economy and one cross-section data sample. The theory proves that capital inflows are decreasing on distance to frontier, which is measured by ratio of domestic productivity level over United States’ level. The evidences not only confirm the theory but also reveal that growth is decreasing on distance to frontier for club of convergence but increasing for club of unconvergence. Therefore, Neo-Classical growth model’s implication, that capital inflows are positively correlated to growth, applies for club of convergence. However, Allocation puzzle, that capital inflows are negatively correlated to growth, works for club of unconvergence. The turning point of U-shape pattern is the productivity growth rate at world technology frontier.

• Item Type: MPRA Paper
• Language: English
• Keywords: International Capital Flows, Productivity Growth, Relative Convergence
• 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

References

Acemoglu, Daron, Philippe Aghion, and Fabrizio Zilibotti. "Distance to frontier, selection, and economic growth." Journal of the European Economic association 4.1 (2006): 37-74.

Aghion, Philippe, and Peter Howitt. "Joseph schumpeter lecture appropriate growth policy: A unifying framework." Journal of the European Economic Association 4.2‐3 (2006): 269-314.

Caballero, Ricardo J., Emmanuel Farhi, and Pierre-Olivier Gourinchas. "An equilibrium model of" global imbalances" and low interest rates." American economic review 98.1 (2008): 358-93.

Coeurdacier, Nicolas, Stephane Guibaud, and Keyu Jin. "Credit constraints and growth in a global economy." The American Economic Review 105.9 (2015): 2838-2881.

Song, Zheng, Kjetil Storesletten, and Fabrizio Zilibotti. "Growing like china." American Economic Review 101.1 (2011): 196-233.