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Financial Integration and Growth in a Risky World

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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https://hal-sciencespo.archives-ouvertes.fr/hal-03799686
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Submitted on : Thursday, October 6, 2022 - 8:58:56 AM
Last modification on : Thursday, October 20, 2022 - 4:01:24 AM

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Nicolas Coeurdacier, Hélène Rey, Pablo Winant. Financial Integration and Growth in a Risky World. Journal of Monetary Economics, 2020, 112 (.), pp.1-21. ⟨10.1016/j.jmoneco.2019.01.022⟩. ⟨hal-03799686⟩

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