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Review of Economic Studies Vol. 73 No. 3 2006

The Elusive Gains from International Financial Integration

Pierre‐Olivier Gourinchas1,2,3,4; Olivier Jeanne5,6,3

1 Center for Economic and Policy Research · 2 National Bureau of Economic Research · 3 Centre for Economic Policy Research · 4 University of California, Berkeley · 5 International Monetary Fund · 6 École nationale des ponts et chaussées

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Abstract

Standard theoretical arguments tell us that countries with relatively little capital benefit from financial integration as foreign capital flows in and speeds up the process of convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for the typical emerging market country. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1 % permanent increase in domestic consumption for the typical non-OECD country. This is negligible relative to the welfare gain from a take-off in domestic productivity of the magnitude observed in some of these countries.

DOI
10.1111/j.1467-937x.2006.00393.x
Volume
73
Issue
3
Pages
715-741
Language
en
Sources
openalex crossref bibtex:phds-export.bib

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