IMF Working Papers

International Finance and Income Convergence: Europe is Different

By Daniel Leigh, Abdul d Abiad, Ashoka Mody

March 1, 2007

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Format: Chicago

Daniel Leigh, Abdul d Abiad, and Ashoka Mody. "International Finance and Income Convergence: Europe is Different", IMF Working Papers 2007, 064 (2007), accessed April 15, 2025, https://doi.org/10.5089/9781451866285.001

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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

Recent studies conclude that the ongoing global financial integration may have had little or no value in advancing economic growth, especially in poor countries. Capital is often found to flow "uphill" from poor to rich countries. And, when it does flow into the less developed economies, it is negatively correlated with growth, calling into question the desirability of foreign capital. In this paper we report that Europe-including the new member states of the European Union-provides a counterexample to these global anomalies. With increasing financial integration, capital in Europe has traveled "downhill" from rich to poor countries, and has done so with gathering strength. These inflows have been associated with significant acceleration of income convergence.

Subject: Current account, Current account balance, Current account deficits, Financial integration, Personal income

Keywords: Balance-to-GDP ratio, Benchmark current account regression, Current account equation, Current account isoquant, WP

Publication Details

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