The Elusive Gains from International Financial Integration

By Pierre-Olivier Gourinchas, Olivier D Jeanne

May 1, 2004

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Pierre-Olivier Gourinchas, and Olivier D Jeanne. The Elusive Gains from International Financial Integration, (USA: International Monetary Fund, 2004) accessed November 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

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 income convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for developing countries. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1 percent permanent increase in domestic consumption for the typical non-OECD country. This is negligible relative to the welfare gain from a take-off in domestic productivity of the magnitude observed in some of these countries.

Subject: Consumption, Financial integration, Human capital, Income, Productivity

Keywords: Capital stock, Interest rate, Physical capital, WP

Publication Details

Pages:

47
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2004/074
Stock No:

WPIEA0742004
ISBN:

9781451849622
ISSN:

1018-5941

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