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The Elusive Gains from International Financial Integration

Author

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  • Pierre-Olivier Gourinchas
  • Mr. Olivier D Jeanne

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 income convergence. We show in a calibrated neoclassical model that conventionally measured welfare gains from this type of convergence appear relatively limited for developing countries. The welfare gain from switching from financial autarky to perfect capital mobility is roughly equivalent to a 1 percent 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.

Suggested Citation

  • Pierre-Olivier Gourinchas & Mr. Olivier D Jeanne, 2004. "The Elusive Gains from International Financial Integration," IMF Working Papers 2004/074, International Monetary Fund.
    • Handle: RePEc:imf:imfwpa:2004/074
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    More about this item

    Keywords

    WP; physical capital; capital stock; interest rate;
    All these keywords.

    JEL classification:

    • F02 - International Economics - - General - - - International Economic Order and Integration
    • F20 - International Economics - - International Factor Movements and International Business - - - General

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