Working Paper: NBER ID: w11301
Authors: Sebnem Kalemli-Ozcan; Ariell Reshef; Bent Sorensen; Oved Yosha
Abstract: The magnitude and the direction of net international capital flows does not fit neo-classical models. The 50 U.S. states comprise an integrated capital market with very low barriers to capital flows, which makes them an ideal testing ground for neoclassical models. We develop a simple frictionless open economy model with perfectly diversified ownership of capital and find that capital flows between the U.S. states are consistent with the model. Therefore, the small size and "wrong" direction of net international capital flows are likely due to frictions associated with national borders and not due to inherent flaws in the neoclassical model.
Keywords: No keywords provided
JEL Codes: F21; F41
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| state productivity (O49) | capital flows (F32) |
| persistent productivity shocks (E32) | capital income payments (D33) |
| output (C67) | income flows (D31) |