The Elusive Benefits from International Financial Integration

The latest version of the paper is available as a pdf (v.06/05).
An earlier version is also available as NBER Working Paper 9684, May 2003, and as CEPR Discussion Paper 3902, May 2003.

here are the slides used for the seminar version of the paper.

This paper was presented at the joint World Bank-Georgetown University-Center for Financial Studies conference on "Financial Globalization: a blessing or a curse?", June 2002; the 2002 NBER Summer Institute; the 2002 Society for Economic Dynamics annual meeting (New York); the Federal Reserve of New York; the Fifth LACEA/IADB/UTDT Workshop in International Economics and Finance, Buenos Aires, August 2002;

Here is the 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 one 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.

Pierre-Olivier Gourinchas
Department of Economics
U.C. Berkeley
Berkeley, CA 94720-3880

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email   : pog@econ.berkeley.edu