Financial integration, capital misallocation and global imbalances

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Serval ID
serval:BIB_3A60EEC54772
Type
Article: article from journal or magazin.
Collection
Publications
Institution
Title
Financial integration, capital misallocation and global imbalances
Journal
Journal of International Money and Finance
Author(s)
Benhima K.
ISSN
0261-5606
Publication state
Published
Issued date
2013
Peer-reviewed
Oui
Volume
32
Pages
324-340
Language
english
Abstract
This paper shows that in a stylized model with two countries, characterized by different levels of financial development, the following facts can be replicated: 1) persistent current account surpluses and 2) high TFP growth in China. Under autarky, entrepreneurs in the emerging country overinvest in short-term projects and underinvest in long-term projects because short-term assets help them secure long-term investments in the presence of credit constraints. This creates an aggregate misallocation of capital. When financial markets integrate, entrepreneurs with long-term projects can have access to cheaper short-term assets abroad, which leaves them more resources to invest in their projects. This both reduces capital misallocations and generates capital outflows.
Keywords
Growth, Capital flows, Credit constraints, Financial globalization, Technological change
Web of science
Open Access
Yes
Create date
15/06/2010 9:58
Last modification date
20/08/2019 13:30
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