Financial integration and growth in a risky world

Coeurdacier, N, Rey, H and Winant, P (2020) Financial integration and growth in a risky world. Journal of Monetary Economics, 112. pp. 1-21. ISSN 0304-3932

Abstract

We revisit the debate on the benefits of financial integration in a two-country neoclassical growth model with aggregate uncertainty. The framework accounts simultaneously for gains from a more efficient capital allocation and gains from risk sharing—together with their interaction. Global numerical methods allow for meaningful welfare comparisons. Gains from integration are quantitatively small, even for riskier and capital scarce emerging economies. These countries import capital for efficiency reasons before exporting it for self-insurance, leading to capital flows and growth reversals along the transition. This opens the door to richer empirical implications than previously considered in the literature.

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Item Type: Article
Subject Areas: Economics
Additional Information:

© 2019 Elsevier. This manuscript version is made available under the CC-BY-NC-ND 4.0 license http://creativecommons.org/licenses/by-nc-nd/4.0

Funder Name: European Research Council, Agence Nationale pour le Developpment de la Recherche en Sante
Subjects: F > Finance
C > Capital markets
Date Deposited: 08 Feb 2019 14:51
Last Modified: 05 Jul 2020 11:05
URI: http://lbsresearch.london.edu/id/eprint/1074
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