Working Paper: NBER ID: w4534
Authors: Maurice Obstfeld
Abstract: This paper surveys the performance of international capital markets and the literature on measuring international capital mobility. Three main functions of a globally integrated and efficient world capital market provide focal points for the analysis. First, asset-price arbitrage ensures that people in different countries face identical prices for a given asset. Second, to the extent that the usual market failures allow, people in different countries can pool risks to their lifetime consumption profiles. Third, new saving, regardless of its country of origin, is allocated toward the world's most productive investment opportunities. The paper evaluates the international capital market's performance of these roles by studying data on international interest-rate differences, international consumption correlations, international portfolio diversification, and the relations between national saving and investment rates. The conclusion is that while international capital mobility has increased markedly in the last two decades, international capital movements remain less free than intranational movements, even among the industrial countries.
Keywords: international capital mobility; capital markets; economic performance
JEL Codes: F21; F32; F36
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| asset price arbitrage (G19) | identical prices for a given asset across countries (F31) |
| international capital mobility (F21) | identical prices for a given asset across countries (F31) |
| international capital mobility (F21) | diversification of consumption risks (G59) |
| diversification of consumption risks (G59) | stable consumption profile across states of nature (D15) |
| national saving rates (D14) | investment rates (G31) |
| government regulations and transaction costs (D23) | international capital mobility (F21) |