Results 1 - 10 of 43

Capital flows to developing countries: the allocation puzzle

by Pierre-olivier Gourinchas, Olivier Jeanne - NBER Working Papers 13602, National Bureau of Economic Research , 2007
"... The textbook neoclassical growth model predicts that countries with faster productivity growth should invest more and attract more foreign capital. We show that the allocation of capital flows across developing countries is the opposite of this prediction: capital does not flow more to countries tha ..."
Abstract - Cited by 136 (7 self) - Add to MetaCart
The textbook neoclassical growth model predicts that countries with faster productivity growth should invest more and attract more foreign capital. We show that the allocation of capital flows across developing countries is the opposite of this prediction: capital does not flow more to countries that invest and grow more. We call this puzzle the “allocation puzzle. ” Using a wedge analysis, we find that the pattern of capital flows is driven by national saving: the allocation puzzle is a saving puzzle. Further disaggregation of capital flows reveals that the allocation puzzle is also related to the pattern of accumulation of international reserves. The solution to the “allocation puzzle”, thus, lies at the nexus between growth, saving and international reserve accumulation. We conclude with a discussion of some possible avenues for research. 1.

A Tractable Model of Precautionary Reserves or Net Foreign Assets ∗

by Christopher Carroll, Olivier Jeanne , 2009
"... We model the motives for residents of a country to hold foreign assets, including the precautionary motive that has been omitted from much of the previous literature as intractable. Our model captures many of the key insights from the existing specialized literature on the precautionary motive. Our ..."
Abstract - Cited by 44 (8 self) - Add to MetaCart
We model the motives for residents of a country to hold foreign assets, including the precautionary motive that has been omitted from much of the previous literature as intractable. Our model captures many of the key insights from the existing specialized literature on the precautionary motive. Our economy exhibits a unique target value of assets, which balances impatience, prudence, risk, intertemporal substitution, and the rate of return in a convenient formula. We use the model to shed light on two topical questions: the “upstream ” flows of capital from developing countries to advanced countries, and the long-run impact of resorbing global financial imbalances.

Productivity Growth and Capital Flows: The Dynamics of Reforms, working paper

by Francisco J Buera , Yongseok Shin , 2011
"... Abstract Why does capital flow out of countries with fast-growing productivity? In this paper, we provide a quantitative framework incorporating heterogeneous production units and underdeveloped domestic financial markets to study the joint dynamics of total factor productivity (TFP) and capital fl ..."
Abstract - Cited by 34 (1 self) - Add to MetaCart
Abstract Why does capital flow out of countries with fast-growing productivity? In this paper, we provide a quantitative framework incorporating heterogeneous production units and underdeveloped domestic financial markets to study the joint dynamics of total factor productivity (TFP) and capital flows. When an unexpected once-and-for-all reform eliminates non-financial idiosyncratic distortions and liberalizes capital accounts, the TFP of our model economy rises gradually and capital flows out of it. The rise in TFP reflects efficient reallocation of capital and talent, a gradual process drawn out by domestic financial market frictions. The concurrent capital outflows are driven by the positive response of domestic saving to higher returns and by the sluggish response of domestic investment to higher TFP-the latter being another ramification of domestic financial frictions. We use our model to analyze the welfare consequences of opening up capital accounts. We find that the marginal welfare impact of capital account liberalization is negative for workers while it is positive for entrepreneurs and wealthy individuals.
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2011): “Financial integration, entrepreneurial risk and global dynamics

by Vasia Panousi, George-marios Angeletos, George-marios Angeletos, Vasia Panousi - Journal of Economic Theory
"... NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff o ..."
Abstract - Cited by 24 (2 self) - Add to MetaCart
NOTE: Staff working papers in the Finance and Economics Discussion Series (FEDS) are preliminary materials circulated to stimulate discussion and critical comment. The analysis and conclusions set forth are those of the authors and do not indicate concurrence by other members of the research staff or the Board of Governors. References in publications to the Finance and Economics Discussion Series (other than acknowledgement) should be cleared with the author(s) to protect the tentative character of these papers.

Growing like China.

by Zheng Song , Kjetil Storesletten , Fabrizio Zilibotti , En Bai , Francesco Caselli , Chang-Tai Hsieh , Yikai Wang , Xiaodong Zhu - American Economic Reivew , 2011
"... Abstract We construct a growth model consistent with China's economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial …rms use more productive technologies, but due to …nancial imperfections ..."
Abstract - Cited by 21 (0 self) - Add to MetaCart
Abstract We construct a growth model consistent with China's economic transition: high output growth, sustained returns on capital, reallocation within the manufacturing sector, and a large trade surplus. Entrepreneurial …rms use more productive technologies, but due to …nancial imperfections they must …nance investments through internal savings. State-owned …rms have low productivity but survive because of better access to credit markets. High-productivity …rms outgrow low-productivity …rms if entrepreneurs have su¢ ciently high savings. The downsizing of …nancially integrated …rms forces domestic savings to be invested abroad, generating a foreign surplus. A calibrated version of the theory accounts quantitatively for China's economic transition. (JEL: F43, G21, O16, O47, O53, P23, P31) We thank the two referees, Chong

External Adjustment, Global Imbalances, Valuation Effects

by Pierre-olivier Gourinchas, Hélène Rey - Handbook of International Economics , 2013
"... Elhanan Helpman and Kenneth Rogoff. Comments on an earlier draft are gratefully acknowledged. Thanks to Evgenia Passari, Nicolas Govillot for their help with the US data. Thanks to Gian Maria Milesi-Ferretti and Philip Lane for providing us with the 2010 update of their dataset. Thanks to the editor ..."
Abstract - Cited by 10 (1 self) - Add to MetaCart
Elhanan Helpman and Kenneth Rogoff. Comments on an earlier draft are gratefully acknowledged. Thanks to Evgenia Passari, Nicolas Govillot for their help with the US data. Thanks to Gian Maria Milesi-Ferretti and Philip Lane for providing us with the 2010 update of their dataset. Thanks to the editors and discussants Vincenzo Quadrini and Paolo Pesenti as well as Maury Obstfeld for detailed comments. Rey gratefully acknowledges support from ERC

Credit Constraints and Growth in a Global Economy

by Nicolas Coeurdacier, Keyu Jin , 2013
"... We show that in an open-economy OLG model, the interaction between growth differentials and household credit constraints, more severe in fast-growing countries, can explain three prominent global trends: a divergence in private saving rates between advanced and emerging economies, large net capital ..."
Abstract - Cited by 6 (1 self) - Add to MetaCart
We show that in an open-economy OLG model, the interaction between growth differentials and household credit constraints, more severe in fast-growing countries, can explain three prominent global trends: a divergence in private saving rates between advanced and emerging economies, large net capital outflows from the latter, and a sustained decline in the world interest rate. Micro-level evidence on the evolution of age-saving profiles in the U.S. and China corroborates our mechanism. Quantitatively, our model explains about 40 percent of the divergence in aggregate saving rates, and a significant portion of the variations in age-saving profiles across countries and over time. JEL Classification: F21, F32, F41

Reserve Accumulation, Growth and Financial Crises," CEPR Discussion Papers 9224. London: Centre for Economic Policy Research

by Gianluca Benigno, Luca Fornaro , 2012
"... We present a model that reproduces two salient facts characterizing the inter-national monetary system: Fast growing emerging countries i) Run current account surpluses, ii) Accumulate international reserves and receive net private inflows. We study a two-sector, tradable and non-tradable, small ope ..."
Abstract - Cited by 5 (2 self) - Add to MetaCart
We present a model that reproduces two salient facts characterizing the inter-national monetary system: Fast growing emerging countries i) Run current account surpluses, ii) Accumulate international reserves and receive net private inflows. We study a two-sector, tradable and non-tradable, small open economy. There is a growth externality in the tradable sector and agents have imperfect access to in-ternational financial markets. By accumulating foreign reserves, the government induces a real exchange rate depreciation and a reallocation of production towards the tradable sector that boosts growth. Financial frictions generate imperfect sub-stitutability between private and public debt flows so that private agents do not perfectly offset the government policy. The possibility of using reserves to pro-vide liquidity during crises amplifies the positive impact of reserve accumulation on growth. The optimal reserve management entails a fast rate of reserve accu-mulation, as well as higher growth and larger current account surpluses compared to the economy with no policy intervention. The model is also consistent with the

Robustness, Information-Processing Constraints, and the Current Account in

by Yulei Luo , Jun Nie , Eric R Young , Paul Bergin , Larry Qiu , Kevin Salyer , Tom Sargent , Ulf Söderström , Lars Svensson - Small Open Economies,” Journal of International Economics , 2012
"... Abstract We examine the effects of two types of informational frictions, robustness (RB) and finite information-processing capacity (called rational inattention or RI) on the current account, in an otherwise standard intertemporal current account (ICA) model. We show that the interaction of RB and ..."
Abstract - Cited by 3 (3 self) - Add to MetaCart
Abstract We examine the effects of two types of informational frictions, robustness (RB) and finite information-processing capacity (called rational inattention or RI) on the current account, in an otherwise standard intertemporal current account (ICA) model. We show that the interaction of RB and RI has the potential to improve the model's predictions on the joint dynamics of the current account and income: (i) the contemporaneous correlation between the current account and income, (ii) the volatility and persistence of the current account in small open emerging and developed economies. In addition, we show that the two informational frictions could also better explain consumption dynamics in small open economies: the impulse responses of consumption to income shocks and the relative volatility of consumption growth to income growth. Calibrated versions using detection probabilities fit the data better along these dimensions than the standard model does. JEL Classification Numbers: C61, D81, E21.

2011. “Current Account Rebalancing and Real Exchange Rate Adjustment between the U.S

by Isabelle Méjean , Pau Rabanal , Damiano Sandri , Isabelle Méjean , Pau Rabanal , Damiano Sandri , Olivier Blanchard , Gian Maria Milesi-Ferretti , Steven Barnett , Rudolfs Bems , Malhar Nabar , Naghwa Riad , Mika Saito - and Emerging Asia.” IMF Working Paper 11/46. International Monetary Fund
"... Abstract A reduction in the U.S. current account deficit vis-à-vis emerging Asia involves a shift in demand from U.S. to emerging Asia tradable goods and a change in international relative prices. This paper quantifies the required adjustment in the terms of trade and real exchange rates in a three ..."
Abstract - Cited by 2 (0 self) - Add to MetaCart
Abstract A reduction in the U.S. current account deficit vis-à-vis emerging Asia involves a shift in demand from U.S. to emerging Asia tradable goods and a change in international relative prices. This paper quantifies the required adjustment in the terms of trade and real exchange rates in a three-country open economy model of the U.S., China, and other emerging Asia. We compare scenarios where both Chinese and other emerging Asian export prices change by the same proportion to the case where export prices remain constant in one country and increase in the other. Our results are robust to different assumptions about elasticities of substitution and to introducing a high degree of vertical fragmentation in production in the model. JEL Classification Numbers: F41, F47
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