The Elusive Gains from International Financial Integration

By P. Gourinchas, Olivier Jeanne. Social Science Research Network, 2004

530 citations recorded by the source corpus.

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 1% 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 countries.

Subfields: Economics and Econometrics, Finance

View Paper: https://www.semanticscholar.org/paper/36bb4c26cb8d123752b61a468e0847dbf3aa5195

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Citations in the corpus

Financial Market Integration and Economic Growth in the EU (2004, unknown): “But this particular source of welfare and output gains, central to the neoclassical growth model, proves limited in practice (see Gourinchas and Jeanne (2003) for some estimates of the gains from complete”
Growth, productivity and capital accumulation: The effects of financial liberalization in the case of European integration (2013, unknown): “As an important consequence for the latter, the reduction of capital costs follows, thereby motivating higher investment and, finally, positively – even though temporary – influencing growth (Barro, Mankiw, & Sala-i-Martin, 1995; Gourinchas & Jeanne, 2006).”
Productivity Growth and Capital Flows: The Dynamics of Reforms (2017, unknown): “23See Gourinchas and Jeanne (2006) and the references therein.”
Determinants of FDI in developed and developing countries: a quantitative analysis using GMM (2018, background): “The positive coefficients of efficiency change in static and dynamic model (in case of developing countries) signify the importance of efficiency in attracting FDI (Dunning, 1998; Kinoshita and Campos, 2003; Gourinchas and Jeanne, 2006).”
The Marginal Product of Capital (2005, unknown): “ Gourinchas and Jeanne (2003) flnd large (calibrated) MPK difierentials, and consequently predict large capital in∞ows following capital-account liberalization.”
Regulating Capital Flows to Emerging Markets: An Externality View (2018, unknown): “However, Gourinchas and Jeanne (2006) point out that in a calibrated version of a neoclassical model, the welfare benefits of financial integration are actually quite small.”
Defaultable Debt, Interest Rates and the Current Account (2004, unknown): “Specifically, the breakeven price of debt solves q̂t ¼ 1 1þ r4 min 1; â4 â þ Et 1 Dtþ1f gmax 1 â4 â ; 0 : The presence of bailouts obviously implies that debt up to â* carries a risk free interest rate.”
Growth in the Shadow of Expropriation (2011, unknown): “Working paper Growth in the Shadow of Expropriation Mark Aguiar Manuel Amador June 2011 When citing this paper, please use the title and the following reference number: S-3001-NOC-1 GROWTH IN THE SHADOW OF EXPROPRIATION∗”
Does Capital Account Liberalization Lead To Growth (2008, unknown): “(See, e.g., Gourinchas and Jeanne, 2006 .) Given this divergence in theory, scholars undertook empirical tests.”