Saving Wedge, Productivity Growth and International Capital Flows

Ly-Dai, Hung (2015): Saving Wedge, Productivity Growth and International Capital Flows.

Abstract

On one small open OLG economy, the productivity growth determines both the in- vestment through marginal product of capital and the savings through endogenous financial friction modeled as the capital income taxation. Therefore, the over-time fluctuation of international capital flows is shaped by the changes of productivity growth. The empirical evidences on one panel sample of 180 economies over 1980- 2013 confirm the endogeneity of financial friction as one mechanism underlying the impact of productivity growth on net total capital inflows. Furthermore, the combination of theory and evidences reveals that, for capital flows, the implication of Neo-Classical growth model works on the investment side, while the allocation puzzle applies on the saving side.

• Item Type: MPRA Paper
• Language: English
• Keywords: International Capital Flows, Allocation Puzzle, Endogenous Financial Friction, Productivity Growth Rate
• Subjects: F - International Economics > F2 - International Factor Movements and International Business > F21 - International Investment ; Long-Term Capital Movements; F - International Economics > F4 - Macroeconomic Aspects of International Trade and Finance > F41 - Open Economy Macroeconomics; H - Public Economics > H2 - Taxation, Subsidies, and Revenue > H20 - General

References

Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych. ”Why doesn’t capital flow from rich to poor countries? An empirical investigation.” The Review of Economics and Statistics 90.2 (2008): 347-368.

Alfaro, Laura, Sebnem Kalemli-Ozcan, and Vadym Volosovych. ”Sovereigns, upstream capital flows, and global imbalances.” Journal of the European Economic Association 12.5 (2014): 1240-1284.

Barro, Robert J. and Sala-I-Martin, X. ”Economic Growth.” Second edition, (2002).

Bernanke, Ben S. The global saving glut and the US current account deficit. No. 77. 2005.

Carroll, Christopher D., Jody Overland, and David N. Weil. ”Saving and growth with habit formation.” American Economic Review (2000): 341-355.

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

Frenkel, Jacob A., Assaf Razin, and Efraim Sadka. International taxation in an integrated world. MIT press, 1991.

Gourinchas, Pierre-Olivier, and Olivier Jeanne. ”Capital flows to developing countries: The allocation puzzle.” The Review of Economic Studies (2013).

Guvenen, Fatih. ”Reconciling conflicting evidence on the elasticity of intertemporal substitution: A macroeconomic perspective.” Journal of Monetary Economics 53.7 (2006): 1451-1472.

Hall, Robert E. ”Intertemporal Substitution in Consumption.” Journal of Political Economy 96.2 (1988): 339-357.

Lucas, Robert E. ”Why doesn’t capital flow from rich to poor countries?.” The Amer- ican Economic Review 80.2 (1990): 92-96.

Obstfeld, Maurice, and Kenneth S. Rogoff. Foundations of international macroe- conomics. Vol. 30. Cambridge, MA: MIT press, 1996.

Ogaki, Masao, and Carmen M. Reinhart. ”Measuring intertemporal substitution: The role of durable goods.” Journal of Political Economy 106.5 (1998): 1078-1098.

Solow, Robert M. ”A contribution to the theory of economic growth.” The Quarterly Journal of Economics 70.1 (1956): 65-94.

Swan, Trevor W. ”Economic growth and capital accumulation.” Economic Record 32.2 (1956): 334-361.

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