International Financial Markets and Economic Development of Nations

• Applicant: Professor Volker Böhm, Ph.D.
• Subject Area: Economic Theory
• Term: from 2004 to 2010
• Project identifier: Deutsche Forschungsgemeinschaft (DFG) - Project number 5444464

According to standard neoclassical theory, financial market globalization is an equalizing force, which induces convergence of economic performance across countries even without international mobility of labor forces. In the last decades there has been a trend toward global integration of financial markets and the trade volume of financial markets have exceeded by far that of goods and services. On the other hand, a number of empirical studies have shown evidence against convergence across countries. However, there are few formal models analyzing the relationships between international financial transactions and economic growth explicitly which exhibit conditions unter which convergence or nonconvergence may take place. This project develops an explicit dynamic model in which domestic consumers make their portfolio decisions in international financial markets. The dynamic relationships between domestic capital accumulation and international financial market will be examined. The model is designed to identify those international market forces and structural characteristics of economies leading to different long run behavior of world income distribution. The goal is to explain why some countries seem to gain from the global financial market while others do not.

• DFG Programme: Research Grants