Working Paper: NBER ID: w9684
Authors: Pierre-Olivier Gourinchas; Olivier Jeanne
Abstract: 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 one percent 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 of these countries.
Keywords: No keywords provided
JEL Codes: F2; F3; F43; E13; O11
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| financial openness (F30) | domestic welfare (I38) |
| financial autarky (F39) | domestic consumption (E20) |
| financial integration (F30) | domestic consumption (E20) |
| financial integration (F30) | productivity improvements (O49) |
| productivity differences (O49) | convergence between developed and less developed countries (O10) |