Finanzmarktentwicklung und Internationale Finanzintegration
Zusammenfassung der Projektergebnisse
This project includes three theoretical papers investigating the impacts of cross-country differences in financial development on the composition, direction, and magnitude of international capital flows as well as their macroeconomic implications. Standard international macroeconomics predicts that capital flows from capital-rich countries, where the marginal return on investment is low, to capital-poor countries, where the marginal return is high. Furthermore, there should be no difference between gross and net capital flows, as capital movements are unidirectional. However, a large body of empirical research has identified three “puzzles”, in contradiction with these predictions. First, net capital flows have been “uphill” from poor to rich countries since 1998. Second, many developing economies are net importers of foreign direct investment (hereafter, FDI) and net exporters of financial capital at the same time, while many developed countries exhibit the opposite pattern. Third, despite its negative net international investment position since 1986, the U.S. has been receiving a positive net international investment income until 2006. In the first paper, we develop a tractable, two-country, overlapping-generations model with domestic credit market imperfections. Individuals differ in how efficiently they can use physical capital in production. What matters for the patterns of international capital flows is not only the economy’s aggregate capital stock, but also its distribution among individuals as well as the level of financial development. Under international financial autarky, the level of financial development in the economy and the wealth distribution determine the rates of return on different types of financial assets. In other words, cross-country differences in financial development create the international interest rate differentials, which then generate the international flows of financial capital and FDI under international financial integration. In particular, the qualitative predictions of our model are consistent with the three puzzles mentioned above. Furthermore, we also investigate the efficiency and welfare implications of capital flow both on the macro-level as well as on the micro-level. According to the neoclassical macroeconomic theory, due to declining marginal product of capital, the recent patterns of “uphill” net capital flows would make the poor countries and the world economy poorer. Thus, the world would be better off without international capital movements between rich and poor countries. In the second paper, we extend the basic model in the first paper into a more general framework of a two-sector, multicountry, overlapping-generations model to analyze the output implications of the recent patterns of capital flows at the country and the world level. Besides the interest rate distortion, financial frictions also distort aggregate output through the two distinct channels, i.e., the composition of domestic investment and the size of domestic savings. The results on the patterns of international capital flows in our first paper are confirmed in this general framework. Here, our main contribution is to show that, even if net capital flows are “uphill”, international capital mobility can increase output in the poor countries as well as globally through these two distinct channels, and we also identify the conditions under which it holds. In the third paper, we check the robustness of our results in the first paper under alternative assumptions of financial frictions. Two financial frictions, i.e., limited commitment and incomplete markets, are integrated in a two-sector, two-country, overlapping-generations model. Limited commitment gives rise to borrowing constraints in one sector, distorting the investment by agents with different productivity, while incomplete markets give rises to uninsured idiosyncratic investment in the other sector, distorting the investment among projects with different riskiness. Although the two financial frictions measure two distinct aspects of financial market imperfections and distort aggregate investment in different dimensions, they have the same distortions on interest rates so that the steady-state patterns of capital flows in the model setting with either financial friction are in line with three empirical facts.
Projektbezogene Publikationen (Auswahl)
- “Finanzielle Globalisierung - 3 Puzzle und eine Erklärung”, Vorträge I-28, Nordrhein-Westfälische Akademie der Wissenschaften und der Künste, 2009
Jürgen von Hagen und Haiping Zhang
- “Financial Development and Patterns of International Capital Flows”, SMU Economics & Statistics Working Paper No. 02-2010 und CEPR Discussion Paper No. 7690
Jürgen von Hagen und Haiping Zhang
- “International Capital Flows and Aggregate Output”, SMU Economics & Statistics Working Paper No. 10-2010 und CEPR Discussion Paper No. 8400
Jürgen von Hagen und Haiping Zhang
- “International Capital Flows with Limited Commitment and Incomplete Markets”, 2011, CEPR Discussion Paper 6994
Jürgen von Hagen und Haiping Zhang
